Conference Coverage – REBusinessOnlinehttp://rebusinessonline.com
Commercial Real Estate from Coast to CoastMon, 19 Nov 2018 23:35:21 +0000en-UShourly1https://wordpress.org/?v=4.9.8InterFace Keynote Address: Panic Over E-Commerce’s Effect on Retail Real Estate is Full of Mythshttp://rebusinessonline.com/interface-keynote-panic-over-e-commerces-effect-on-retail-real-estate-is-full-of-myths/
Thu, 11 Oct 2018 11:50:44 +0000http://rebusinessonline.com/?p=214421NEW YORK CITY — News headlines such as “Retail Is Dead” have painted a picture of desolation and destruction for the current state of retail real estate in the United States. However, while e-commerce “is the most discussed, it’s also the most misunderstood,” according to Melina Cordero, global head of retail research for CBRE. Cordero’s […]]]>

NEW YORK CITY — News headlines such as “Retail Is Dead” have painted a picture of desolation and destruction for the current state of retail real estate in the United States. However, while e-commerce “is the most discussed, it’s also the most misunderstood,” according to Melina Cordero, global head of retail research for CBRE.

Cordero’s remarks came during her keynote address at the InterFace Net Lease conference held on Wednesday, Oct. 3. The ninth annual event drew 265 real estate professionals to the New York City Bar Association.

Cordero listed a series of myths about retail and e-commerce that lead to apocalyptic headlines that she says are simply not accurate.

Myth 1: E-Commerce is Taking Over

To illustrate her point, Cordero displayed a chart tracking growth, showing e-commerce outpacing in-store sales. However, when the actual sale totals rather than growth percentages are compared, only 10 percent of retail sales are online. Furthermore, 50 percent of online retail sales go to companies with a brick-and-mortar presence.

“Less than 4 to 5 percent of total retail sales are going to online-only players. This is a very different picture than what we’re usually presented,” said Cordero.

She cited specific retailers who, while known as brick-and-mortar stores, make a very high percentage of their money online. For example, Nordstrom’s online share of sales is 27 percent, Anthroplogie’s is 39 percent and Williams-Sonoma is 53 percent.

“People ask if online is taking over brick and mortar. Well, you could argue it’s the other way around,” said Cordero. “Aren’t brick-and-mortar players learning to take over that space and leverage it for their own business?”

Myth 2: E-Commerce is More Efficient

E-commerce has completely flipped the distribution structure for products on its head. While consumers may see free deliveries directly to their door as incredibly convenient and efficient, it also disrupts a system built around sending huge, predictable shipments to a limited number of locations.

“Not only are you delivering to your established store network, but also to millions and millions of doorsteps, on demand, by the hour, within two to three days, and you have to do it for free,” notes Cordero. “The cost of fulfilling online orders is astronomical and it’s putting incredible pressure on retailers and markets.”

Online returns are extremely costly, as they take a formerly one-way distribution system (from the warehouse to the store) and “push things back through the supply chain, causing a lot of friction and issues.”

This challenge is compounded by a higher likelihood of returns. Returns happen for only 8 percent of in-store sales, compared with 30 to 40 percent of online sales.

Returns get so costly and erode profit margins so much that retails end up throwing out products because it will be cheaper than trying to repackage, resell and reship them, said Cordero.

Myth 3: E-Commerce and Stores Hurt Each Other

The future of retail belongs to the omnichannel sellers, according to Cordero — retailers that combine online and in-store presence. Consumer data shows that online sales and in-store sales both are higher in a market where the retailer has a physical store.

“When you have online sales available, your store sales are higher. When Macy’s closes a store, their online sales in that market go down,” said Cordero. “This is why retailers aren’t rushing to close their store networks.”

Cordero even went as far as to predict that online-only retailers with no store presence are almost never profitable, and will no longer exist at all by 2030. Instead, in-store retail will remain essential, but shift to a heavier focus on convenience. Expect to see an increase in curbside pickup service, automated kiosks and even robots, suggested Cordero.

“We’re approaching the end of the line. I predict in the next five to 10 years we’ll never stand in lines again. Everything is going to be so efficient and automated. You’ll tell your grandchildren about lines the same way we’ll tell them about landline phones.”

— Jeff Shaw

]]>InterFace Panel: Technology Can Optimize Multifamily Lease Renewalshttp://rebusinessonline.com/interface-panel-technology-can-optimize-multifamily-lease-renewals/
Thu, 04 Oct 2018 12:04:11 +0000http://rebusinessonline.com/?p=213814DALLAS — Multifamily development in the United States has been on a tear over the last five years, increasing competition for renters and making lease renewal rates a casualty of war. According to an August report from rentcafe.com, American multifamily developers delivered about 318,000 new units in 2017, more than double the deliveries from five […]]]>

DALLAS — Multifamily development in the United States has been on a tear over the last five years, increasing competition for renters and making lease renewal rates a casualty of war.

According to an August report from rentcafe.com, American multifamily developers delivered about 318,000 new units in 2017, more than double the deliveries from five years earlier. New multifamily construction between 2014 and 2016 averaged about 275,000 new units per year. That’s more than double the yearly average of 136,000 units per year that were delivered during the down years of 2011 through 2013.

In addition, according to the National Apartment Association (NAA), the U.S. will need to add about 4.6 million new units by 2030 to keep up with demand. In most urban markets, this pace of development has either led to concessions or discounts on rent.

This problem is compounded by the fact that in high-growth markets, renters usually have access to newer, competing multifamily product within a few miles. So long as they’re willing to move, renters can in theory receive new rounds of concessions from year to year.

To recoup income lost from concessions, as well as to post strong occupancies if a property is put on the market, multifamily managers and leasing agents have gotten smarter and more ruthless in their efforts to keep renters in place. Increasingly, this means relying on technology to secure lease renewals.

This is according to multifamily professionals that spoke at the InterFace Multifamily Texas conference on Sept. 26. The panelists were quick to assert that technology is critical to leasing efforts in today’s market.

“The multifamily industry used to measure itself largely based on physical occupancy,” said panelist David Marcinkowksi, partner at Madera Residential. “Today there are so many so many variables for apartments for which decisions have to be made that no single person can juggle all those balls and consistently give good answers. That’s where artificial intelligence comes into the picture.”

About 250 people from across the state and country descended on the Westin Galleria hotel in Dallas to get the latest insights on what kinds of algorithms, platforms and formulas are being used to keep units occupied by the same people year in and year out. Hugh Cobb, partner at Alpha Barnes Real Estate Services, moderated the panel on leasing, management and operations.

Renter Expectations Rise

The panel concurred that renters of Class A product in major markets are increasingly coming to expect certain features and services — trash valet, package lockers — to be included in their living experience, without adding to base rents.

“More and more, we’re seeing that there’s no additional charge we can levee for core technology items,” said panelist Kevin Owens, senior vice president of operations for CF Real Estate Services, a regional multifamily management firm. “So we’re seeking new, different technology options that we can charge for to hit our returns.”

Owens cited nest thermostats, which employ advanced algorithms to self-regulate energy usage, as an example of a technological feature that has become more of an expectation than a luxury among Class A renters.

Renters also expect to find talented apartment managers and maintenance staff at their properties. Competition for these employees has heated up during this cycle as more projects have come on line.

Technology plays a part in this battle for talent as well. Owens noted that his firm has begun to monitor its ratings on employer-ranking site glassdoor.com, as well as to track its rate of internal promotions. The company has also developed a mentorship program for new hires. Simple software applications allow these metrics to be calculated and analyzed with accuracy.

Owners Face New Challenges

James Flick, director of revenue management at Camden Property Trust, a Houston-based REIT, said his firm has begun developing solutions in-house to address the issue of sluggish renewal rates.

The company has a program that determines how many new leases and renewals need to be executed at a property in a given week to keep up with pro-forma projections. The formula considers input factors such as how many scheduled visits a property has and how many guest cars are on site.

“With business intelligence, the goal is to get prescriptive and have data that tells you exactly what you need to do,” said Flick. “We use our technology to work with our marketing groups and to define very specific goals and needs for them.”

According to Flick, based on historical data, Camden’s properties generally add one lease for every 13 guest cars. But with all the new properties coming on line, the firm knows that ratio could be inaccurate, as well as variable by market.

“On the marketing side, there’s constant uncertainty with some of these new techniques,” said Flick. “Some of them have been very successful, but in these highly competitive markets, there have been some challenges due to all the new supply.”

Marketing For Success

In a renter’s market, multifamily owners and developers must target tenants from all demographic classes to maintain strong occupancies. As such, the use of apartment locators, social media promotion — and of course, discounts and concessions — have become central to the multifamily marketing gam.

But perfecting the models, finding the right message and optimizing its delivery require time and manpower. Until the industry gets a firm handle on how to best execute these tasks, it will face uncertainty, especially in terms of technology.

“We’re all still trying to cater to millennials with our amenity packages, but we’re also trying to determine how much technology is good technology,” said panelist Stacy Hunt, executive director at Greystar, which manages nearly 500,000 units in the U.S. and Europe. “We want to make sure that whatever technology we invest in that is sustainable and truly acceptable to residents to pay for.”

— Taylor Williams

]]>InterFace Panel Ponders How Mergers, Consolidations Will Impact Healthcare Real Estatehttp://rebusinessonline.com/panel-ponders-how-mergers-consolidations-will-impact-healthcare-real-estate/
Tue, 02 Oct 2018 12:03:39 +0000http://rebusinessonline.com/?p=213608DALLAS — The past 12 to 18 months have seen a strong uptick in the number of mergers and consolidations among healthcare providers in the United States, and industry experts are still trying to figure out how this activity will impact cash flows, pricing and cap rates for healthcare properties. A recent report from the […]]]>

DALLAS — The past 12 to 18 months have seen a strong uptick in the number of mergers and consolidations among healthcare providers in the United States, and industry experts are still trying to figure out how this activity will impact cash flows, pricing and cap rates for healthcare properties.

A recent report from the Health Research Institute at PricewaterhouseCoopers (PwC) identified 255 healthcare merger and acquisition deals in the second quarter of 2018 alone. That figure actually represented a 7.3 percent decline in this kind of deal volume from the first quarter of 2018.

The PwC report noted that healthcare providers are facing declining revenues driven in part by lower reimbursement rates for both public and private payors, forcing them to cut costs to stop the bleeding. Mergers, partnerships and strategic alliances provide conduits for this kind of cost cutting.

Larger deals proposed or closed this year include the $69 billion merger between Aetna and CVS, as well as Cigna’s $67 billion acquisition of pharmacy benefit manager Express Scripts. Rite Aid also cast merger bids with Walgreens and Albertsons, though both failed to reach completion. And on Oct. 2, two Texas-based healthcare providers, Baylor Scott & White and Memorial Hermann, announced a merger to become the largest healthcare system in the Lone Star State.

The gravity of this marketplace trend immediately dominated the introductory panel discussion at the InterFace Healthcare Real Estate conference on Sept. 27. Held at the Westin Galleria hotel in Dallas, the event drew approximately 260 healthcare and real estate professionals from around the country. Murray Wolf, publisher of Healthcare Real Estate Insights, moderated the panel.

Why Merge/Consolidate?

The logic behind these deals is rooted in the concept of economies of scale: By bringing more patients into a single healthcare system, providers can cut operating costs while increasing the volume of services delivered.

Traditional providers in the healthcare space are seeing new competition from mega-retailers like Walmart, which is upping its presence in the industry. The Arkansas-based Fortune 500 company has the real estate to grow its physical footprint in the healthcare market, and is working to integrate specific services, such as eye care and health screenings, into its onsite offerings.

Conventional healthcare providers also face disruption brought on by the foray of Amazon, Berkshire Hathaway and JPMorgan Chase into the sector. This partnership among three of the world’s wealthiest companies has vowed to introduce healthcare options made affordable in part by low administrative costs, initially for the firms’ own employees and later for others. According to Bloomberg, if successful, this venture could end up impacting more than 150 million employer-sponsored healthcare plans in the U.S.

It all adds up to a rapidly changing model of healthcare delivery, one wherein speed and convenience matter almost as much as quality of care.

In addition, healthcare spending currently accounts for about 18 percent of the country’s GDP. As such, the impacts of these mergers, consolidations and partnerships on delivery costs — and by extension, on healthcare real estate — represent perhaps the biggest shake-up to the industry since the passing of the Affordable Care Act.

Changing Trends

Panelist P.J. Camp, principal at healthcare investment and advisory firm Hammond Hanlon Camp LLC, noted that roughly 10 million Americans are expected to drop their insurance policies in 2019, when the new tax bill eliminates the penalty for being uninsured.

“For healthcare real estate owners, this activity means that tenants will become more creditworthy,” said Camp. “But it also means there could be some consolidation of the real estate as well. However it shakes out, there’s going to be some big winners and a few more losers.”

This drop in coverage will cause costs at medical facilities to rise as the burdens are shifted away from insurance carriers to providers, putting downward pressure on cap rates as unpaid services cut into net income.

By merging with competitors and consolidating, healthcare providers hope to be able to offset the impacts of this activity through reduced operating costs. These expenses can include property taxes and maintenance fees, as well as basic overhead costs associated with the real estate.

“All of these changes are part of a larger paradigm shift,” said panelist John Pollock, CEO of healthcare development firm Meridian Property Co. “We have to wear a lot of different hats in order to solve these problems for our clients. As opposed to waiting for the next opportunity, we have to go out and manufacture opportunities.”

Retail Implications

“Retailization” of healthcare is proof of how changes in delivery are impacting trends on the real estate side, according to panelist Darryl Freling, managing principal of MedProperties Holdings, a private equity firm focused on healthcare assets.

“Healthcare is a commodity-driven service, and its providers are competing for market share,” said Freling. “Part of how those services differentiate themselves is through their customer service, which means putting more emphasis on convenience. So we’re seeing the delivery of healthcare be pushed off major campuses into suburban retail settings, which will have big impacts on real estate.”

Panelist Lance Hardenburg, executive vice president of Dallas-based Caddis Healthcare Real Estate, concurred with this view. He noted that in some markets, retailers are emerging as leading primary care providers due to their low costs of delivery. In addition, Hardenburg said, the siege of traditional retail real estate by e-commerce has boosted demand for healthcare users in malls and shopping centers, which have space to backfill.

“If you think healthcare real estate is transforming, look at retail,” said panelist Gordon Soderlund, executive vice president of Flagship Healthcare Properties. “The whole dynamic behind shopping is changing. Retail owners are looking at us and saying, ‘How can we attract healthcare providers into our malls and centers?’ It’s all rooted in the live-work-play mentality.”

— Taylor Williams

]]>Panel: Multifamily Developers in DFW Should Focus on Costs, Not Revenuehttp://rebusinessonline.com/panel-multifamily-developers-in-dfw-should-focus-on-costs-not-revenue/
Thu, 27 Sep 2018 12:11:02 +0000http://rebusinessonline.com/?p=213255DALLAS — After experiencing exceptional rent growth between 2014 and 2017, it may be time for developers of multifamily product in the Dallas-Fort Worth (DFW) metroplex to shift their attention from the revenue side of the equation to the expense side. According to CoStar Group, average asking rents across DFW rose by about 12 percent […]]]>

DALLAS — After experiencing exceptional rent growth between 2014 and 2017, it may be time for developers of multifamily product in the Dallas-Fort Worth (DFW) metroplex to shift their attention from the revenue side of the equation to the expense side.

According to CoStar Group, average asking rents across DFW rose by about 12 percent between 2014 and 2017. The year-over-year rent growth of 6.3 percent that occurred between 2014 and 2015 marked a 10-year high for the market and kicked new development into high gear.

Now, however, the metroplex has become inundated with new multifamily supply — nearly 22,000 new units delivered in the past 12 months. Rent growth has slowed to about 2.2 percent year-to-date and vacancy is inching upward. But rather than pump the brakes on building, developers should be looking for ways to cut costs, not push rents, if they want to maintain their current levels of profitability.

Such was the conclusion of six multifamily developers who gathered at the seventh annual InterFace Multifamily Texas conference on Sept. 26. Held at the Westin Galleria hotel in Dallas, the event drew roughly 250 attendees.

Matt Brendel, divisional president and managing partner at Irving, Texas-based JPI, was the first panelist to steer the conversation in this direction, noting that at this point in the cycle, multifamily developers must be more focused on finding efficiencies in design and construction than in years past.

“Because revenues have been so strong for the past few years, everybody’s been focused on trying to put 12 pounds in a 10-pound bag,” said Brendel. “The focus has been on introducing as many amenities and unit features as possible. But now we’re looking at the cost side of development a lot more closely.”

Moderator Drew Kile, senior director of Marcus & Millichap’s Institutional Property Advisors (IPA) division, pointed out that at this point, renters of Class A units have become very accustomed to extensive amenity packages and upgraded unit interiors. Developers should not regress on these features, but should instead try to acquire a better understanding of which ones appeal most to renters.

“One of the challenges the industry is facing is that it can’t take a step backward,” said Kile. “If a unit doesn’t have certain little things, like 10-foot ceilings or a modern kitchen, renters might go elsewhere. So the challenge lies in monitoring those costs while still delivering product that’s going to lease up quickly and sell.”

Differentiation By Service

Offering renters certain services — concierge, trash valet, package handling — is becoming a cost-effective way to distinguish a property from the competition. In many cases, the costs of these services are factored into the final rental rate so that renters don’t view them as ancillary or unnecessary expenses.

Developers of Class A product are increasingly borrowing on practices from the hospitality industry to accomplish this goal, and are introducing creative ideas that promote social engagement and mingling within the community. Examples of these services include brunches on weekends, wine tastings and organized fitness classes.

Panelist Rick Perdue, senior managing director at Mill Creek Residential, said that his firm’s property managers are constantly working to gather data and feedback from residents on which amenities they value and are truly willing to pay for.

“We’re getting really good at asking questions, because we’ve realized that what developers think people will pay for is not necessarily what renters truly will pay for,” he said. “We share that feedback with managers in all markets we’re active in. And if a service or amenity isn’t something people are willing to spend on, we get rid of it, even if our competitors have it.”

Single-Family Feel, Multifamily Space

In terms of physical features, developers are finding affordable ways to add attached garages, private balconies and yard space on ground-floor units. Typically this is accomplished through designing the property so that is has an unusual shape, thereby utilizing all available land, as well as by using alternate building materials.

The goal of this activity is to capture the privacy of a single-family setting without breaking the bank. According to the panel, this is critical in a market like DFW, which not only has a strong contingent of millennial renters, but also a growing population of older couples that want to downsize once their children are grown.

Panelist Greg Coutant, director of development at StreetLights Residential, stated that his company is increasingly building product that can be marketed toward people that would normally spring for condos. This type of resident appreciates the amenities and services of a multifamily community, but also wants the intimate setting of a single-family home.

“Ultimately, it’s about delivering quality of life,” said Coutant. “That’s what you’re selling when you rent an apartment as opposed to buying a home. And there are a lot of people who when they reach a certain age would rather put their money toward rent instead of property taxes.”

— Taylor Williams

]]>InterFace Brokerage Panel: Phoenix Industrial ‘Moving Up the Food Chain’http://rebusinessonline.com/interface-brokerage-panel-phoenix-industrial-moves-up-the-food-chain/
Fri, 21 Sep 2018 17:12:16 +0000http://rebusinessonline.com/?p=212826The InterFace Phoenix Industrial conference and networking event was held on Wednesday, Sept. 12, featuring three panel discussions. The brokerage panel, moderated by Rob Martensen, executive vice president with Colliers International, featured a lively discussion about activity in local submarkets and a recap of the reasons Phoenix is winning deals over Southern California and Nevada. […]]]>

The InterFace Phoenix Industrial conference and networking event was held on Wednesday, Sept. 12, featuring three panel discussions.

The brokerage panel, moderated by Rob Martensen, executive vice president with Colliers International, featured a lively discussion about activity in local submarkets and a recap of the reasons Phoenix is winning deals over Southern California and Nevada.

Industrial Activity in Arizona

Anthony Lydon, JLL

Microsoft recently purchased 267 acres for a data center in the West Valley, said Anthony Lydon, national director, Industrial Supply Chain & Logistics Solutions with JLL.

Qualified data centers receive waivers on personal property tax for 10 years, Lydon said, noting that each rack in a data center is approximately $1 million in personal property, so data centers are certainly enjoying the benefits of locating in Arizona.

Arizona will also be a huge winner in the manufacturing sector, Lydon added. He cited Colorado-based food packaging provider Ball Corp. as an example of a company that was looking at Mexico for space before the 2016 election but has since opened a plant in the West Valley submarket of Phoenix due to the strategic location between Mexico and Southern California.

Minnesota-based Andersen Windows & Doors is buying 64 acres from Opus to build a manufacturing building in Goodyear, Arizona. “That will create 400 to 500 jobs,” said Andy Markham of Cushman & Wakefield.

Andy Markham, Cushman & Wakefield

Blue Buffalo, represented by Cushman & Wakefield, recently leased 540,000 square feet in Goodyear. Markham explained that Phoenix won out over other markets in California and Nevada due in part to a healthy job market and affordable housing.

He went on to note that 85,000 people move into the state each year and he pointed out that the local universities provide a strong base, especially for engineering roles.

Lydon said that Goodyear is a strong submarket, with development along Loop 303, and benefitting from the reverse commute and the foreign trade zone (FTZ) benefits.

Cooper Fratt, CBRE

The Airport submarket is having a strong 2018, after having an off year in 2017. Absorption in the market in 2017 was less than 1 million square feet for the first time since 2011, “for no particular reason,” said Cooper Fratt, first vice president with CBRE. “The market is popular for all the right reasons: located in the center of town right next to a huge airport, with good access to the Valley freeway system and a great labor base.”

It is a tight market and it is tough to find development sites that don’t require a lot of clean up. “Rents in the Airport market will certainly go up,” he predicts.

Growth & Development

The expansion of Loop 202 will relieve a lot of traffic, according to Markham. “It will have the biggest impact on the Downtown and Airport markets, allowing trucks to bypass downtown.”

He noted that half of the freeway is along an Indian reservation, which makes it difficult to optimize development, but that land values will increase in value from Interstate 10 all the way around the curve.

In fact, Trammell Crow just purchased a tract fronting the 202 Freeway for a 554,000-square-foot project, and Amazon has a building underway at 59th Avenue and the 202 — that site will include about 650 parking spaces and 250 trailer spots.

Lydon noted, “Lucid Motors is going to build a $2 billion electric automotive plant in Pinal County to compete against Tesla. Nikola Trucking is moving to Coolidge — they will spend billions. And the Pasternack team is building 1.1 million square feet with 40-foot clear ceilings at Interstate 10 and 83rd Avenue; it is the largest spec project in Arizona.”

When asked about smaller businesses in the market, Leroy Breinholt, an industrial broker with Commercial Properties Inc. (CPI), noted that they have strengthened tremendously in the Phoenix market. “Construction, manufacturing and light distribution are all growing. Everyone’s business is doing well. If they aren’t doing well now, they should probably do something different,” he said.

“We’re seeing a lot of growth with existing tenants, as well as from companies that are leaving California as they look for less regulation, lower costs and a less expensive labor pool.”

As for investment, there isn’t much small-bay product available, according to Breinholt. But when a property does come to market, the seller will have 10 to 15 offers, he explained.

“There is a need for 6,000- to 30,000-square-foot spaces,” he added.

Despite growth and increasing demand from smaller industrial companies, it isn’t easy to develop smaller industrial product. Breinholt noted that properties that do come to market are averaging sales of $106 per square foot — up to $120 — while replacement costs range from $140 to $160 per square foot. “Land costs have gone up, though not tremendously since 2010. Construction and labor costs are also up,” he noted.

Rob Martensen, Colliers International

Meanwhile, tenant improvement allowances at industrial projects have gone through the roof, Martensen said. “We used to see $10 to $12 per square foot, but today $15 is the almost absolute minimum on a 15,000- to 20,000-square-foot space. And we’re quoting a couple at $20 to $25 per square foot — and they are not crazy build-outs.”

Lydon said that some of the increase in pricing can be attributed to higher-cost materials, but much of it is related to tenant needs. “Phoenix is moving up the food chain; we are getting more value-add occupants,” he said, noting that REI is spending $200 per foot at its box in Goodyear, while food processors in the market are spending $350 per square foot.

A Bright Future

The Arizona market has a lot of momentum. The biggest challenge the market faces is the higher cost of transportation compared with some areas, but operating costs are much lower than in, say, Southern California. The area has a low risk of experiencing a natural disaster — “and eight months out of the year, it is awesome,” laughed Markham.

Phoenix is definitely showing up on more companies’ short lists for industrial space.

]]>It’s All About Job Growth for Phoenix Multifamily, Say InterFace Panelistshttp://rebusinessonline.com/its-all-about-the-job-growth-for-phoenix-multifamily-say-interface-panelists/
Thu, 20 Sep 2018 11:45:55 +0000http://rebusinessonline.com/?p=212680With moderator John Lotardo, senior vice president of Commonwealth Land Title Co., at the helm, owners and developers dove into a discussion about Phoenix’s multifamily market — current trends, future activity and more — at the InterFace Phoenix Multifamily Conference on Sept. 11 in Scottsdale. And the main consensus for the Phoenix market? It’s all […]]]>

With moderator John Lotardo, senior vice president of Commonwealth Land Title Co., at the helm, owners and developers dove into a discussion about Phoenix’s multifamily market — current trends, future activity and more — at the InterFace Phoenix Multifamily Conference on Sept. 11 in Scottsdale.

And the main consensus for the Phoenix market? It’s all about the job growth, absorption is steady and the current activity should continue for the next few years.

Decrease in Homeownership, Increase in Jobs
Overall the marketplace has experienced an increase in job growth, particularly throughout the workforce sector, resulting in a steady need for multifamily housing options across the area.

“Homeownership has gone down approximately 12 percent overall and jobs are increasing,” noted John Rials, executive vice president of Western Wealth Capital.

This trend is creating a more complex demand for housing throughout the market. While there is an increase in jobs, it’s important to note that the majority of those jobs are workforce-level. Developers and owners need to be cognizant of rent ceilings for residents, explained Nicole Wray, senior director with Greystar.

New Audiences, New Exposure
Along with meeting the needs of the continuing influx of renters, owners and developers are navigating the ever-changing demands of residents coupled with new-found exposure from social media platforms and more transparent marketing.

Two main targeted audiences are workforce and millennial tenants; however, each audience is looking for slightly different housing needs. Brett Johnson, vice president of acquisition, West, with Passco, said that each submarket has needs specific to its demographic and targeted audience — whether low density properties with larger floorpans, high density buildings with smaller units or designs in-between.

Mark-Taylor Cos., with more than 19,000 units developed in the Phoenix market, is currently focused on building larger units in lower density configurations with timeless designs and finishings.

“We’ve seen that there are really three things that tenants look for in housing: security, open floorplans and the quality of staff,” said Chris Brozina, executive vice president of Mark-Taylor Cos. “Our main focus is meeting those needs in properties that are universally attractive to a variety of renters.”

Adding Value without Overbuilding
While there may be pockets of overbuilding, Phoenix’s multifamily sector is not overbuilt – yet. Brozina explained that for every 100 jobs created in Phoenix since 1982, there has always been between 13 and 30 units of corresponding apartment demand, resulting in 700 to 9,000 units per year.

While the area’s development pipeline is in line with the historical demand numbers, panelists noted that it’s critical to take into consideration the rent gap from Class A to workforce housing to ensure there is a variety of housing options to meet the needs of tenants.

Not all renters are looking for large units decked out with luxury amenities. Some prefer smaller units and walkability while others may prefer a small yard in a low-density property.

Less Fervor, but Holding Steady
Looking forward, the Phoenix market is poised to stay on a healthy course. In the short term, the area is set for positive development and absorption numbers if job growth continues, particularly if developers are cautious with development.

The Phoenix multifamily market is currently in the middle of a development cycle, but Brozina explained that with today’s tight financing environment projects have an average of four years from initial land selection, acquisition and entitlement through completion.

“Mark-Taylor Cos. is building slower than ever before, but for us the slowdown is risk mitigation,” said Brozina. “As a developer-owner, we want to ensure there is a need before building.”

The market has seen a fervor of development and acquisition activity recently. For example, Wray noted that Greystar, which develops and manages multifamily properties, netted 14 buildings in the marketplace this year. But developers are remaining cautious about the prospects for continued economic expansion.

The multifamily market always ebbs and flows, and while Phoenix’s intense activity will naturally decrease over the next few years, panelists agreed that the market will still offer plenty development, acquisition and disposition opportunities for multifamily.

— Amy Works

]]>Market Studies Are ‘Just One Piece of The Puzzle’ for Seniors Housing Developers, Says InterFace Panelhttp://rebusinessonline.com/market-studies-are-just-one-piece-of-the-puzzle-for-seniors-housing-developers-says-interface-panel/
Thu, 13 Sep 2018 11:30:59 +0000http://rebusinessonline.com/?p=212170ATLANTA — Investing in a quality market study is an important step for a developer to take before breaking ground on a new seniors housing community, but the analysis alone cannot predict the success of a future property. “The report gives you a point-in-time idea of where you’re at, but it doesn’t take into consideration […]]]>

ATLANTA — Investing in a quality market study is an important step for a developer to take before breaking ground on a new seniors housing community, but the analysis alone cannot predict the success of a future property.

“The report gives you a point-in-time idea of where you’re at, but it doesn’t take into consideration what’s really happening within the marketplace, on the ground, in competing communities each and every day,” said Joe Jasmon, CEO and managing partner of American Healthcare Management Group, a consultant to the seniors housing and healthcare industries.

According to Jasmon, in order to get a true feel of the properties you are competing against, it’s imperative to have boots on the ground.

“Everybody looks good on the Internet and everybody will tell a good story on the phone,” he said. “But if you don’t actually go into these communities, you’re missing out on a whole story about the marketplace.”

Jasmon’s comments came during the “Getting Good Data” panel discussion at the fifth annual InterFace Seniors Housing Southeast conference held Wednesday, Aug. 29 at the Westin Buckhead in Atlanta. The one-day event drew nearly 520 developers, lenders, investors and operators in the senior living space.

Joining Jasmon on the panel were Bryon Cohron, senior market analyst at ProMatura Group; Colleen Blumenthal, managing director of HealthTrust; Dominic Romeo, vice president and treasurer of PruittHealth; and Chris Sides, president of Senior Solutions Management Group. Will Childs, partner and executive vice president of seniors housing at OHC Advisors, moderated the panel.

By definition, a market study analyzes consumer demand for a particular product or service in regard to influences such as location, demographics and competition. Depending on the scope and complexity of the project, market reports can range in price anywhere from $3,000 to upwards of $20,000, according to industry sources.

Digging Into the DataWhile market studies alone cannot ensure success, a quality report yields a multitude of data points that can give developers a preliminary idea of whether a market is a good fit for a project. For example, if the area is growing or expanding, it’s most likely a smart time to develop.

According to Jasmon, American Healthcare Management Group gathers data on the number of schools being built in an area to help identify future growth opportunities for seniors housing.

“If they are building new schools, population is growing,” said Jasmon. “A [community] is not going to invest money in a bunch of new schools if it doesn’t see movement.”

A growing population typically means more employers and families are moving into the area, which makes the long-term demographics favorable for seniors housing. What’s more, operators find that many seniors want to live near their adult children, but live independently.

Another factor is the number of single-family neighborhoods going into a market. While that has its caveats, it’s more or less a strong indicator of the viability of the marketplace.

“Granted, the market for single-family homes could be overbuilt, but it can give you some projection of whether or not the growth of the market is sustainable,” said Jasmon.

Zip codes are tellingStill another important factor to consider in a market study is the drive time to a particular property. When prospective residents are considering making the move to a seniors housing community, how far are they willing to travel?

If a client is considering the acquisition of a property, Cohron said one of the first data sets ProMatura Group requests is resident zip code data so it can quantify where existing residents are coming from. The company draws two circles —comparing those residents within a five- and 10-mile radius.

“If we don’t feel relatively comfortable that we can be successful within that five- or 10-mile radius, that is usually a good indicator that maybe this isn’t the market for us,” said Cohron.

While that radius is a solid benchmark in most communities, if a market is deemed a “destination location,” Jasmon added that residents are more likely to travel greater distances.

“If you look at Ormond Beach, Daytona Beach and the Port Orange areas of Florida, those are significant destination areas for many folks from New Jersey and New York because that is where they have wintered for most of their lives,” he said. “If it’s determined a destination location, then there is a higher propensity for folks to travel from wherever.”

However, Cohron emphasized that it is not enough to rely solely on the market study, citing one of ProMatura’s communities in Knoxville, Tennessee.

“We ran the data on residents who moved to the community from within a five- and 10-mile radius, and the demographics were very good,” he said. “However, half of the census in that building came from greater than 25 miles away, and the market study never indicated that.”

It all goes back to having boots on the ground, according to Romeo of PruittHealth. For example, is there a bridge that is going to make it an extra 20-minute drive to the property?

“Until you drive the area you’re going to be in, until you are there at 5 p.m. on a Tuesday, you don’t know what will inhibit a family from visiting a certain property,” he said. “You really have to be careful.”

Overcoming ChallengesOne theme that emerged during the conference was labor availability and the cost to staff seniors housing communities. While it’s important to examine drive times for residents in a market report, Sides of Senior Solutions Management Group argued that it was equally important, if not more so, to consider the travel distance for employees.

“We have two very complicated formulas,” he said. “Can we fill it, can we staff it?”

In metro Atlanta, Sides said that while most residents fit within that 10-mile radius, the majority of his employees are coming from 25 miles away or even farther.

“It’s an important factor to consider,” he said. “On days we have an inclement event, it can be very devastating trying to get people to work.”

Blumenthal of HealthTrust added that the everyday commute by employees to a property could potentially become a competitive challenge for an operator.

“Some employees are driving 45 minutes to an hour each way to a property, which is great until a new one opens up that’s closer to home,” she said. “Even though they love the building and they love the staff, it can be very tempting.”

Operators also point out labor costs are becoming increasingly high in order to attract good workers.

Wage pressures with regard to cook positions have increased noticeably in the last eight months, according to Sides. “Right now we’re averaging $14 to $16 an hour for a cook. Anything below that we find they are typically not a very good worker.”

While market studies can provide developers with a general idea of labor availability and costs in the market, they are not the be-all and end-all. According to Romeo, it really just depends on the market.

“We had a community in Durham, North Carolina, where we didn’t think we’d have any problem,” recalled Romeo. “But the wage costs there are far above what we thought we’d have to pay, and that has made it very challenging for us.”

Labor availability is such an important issue that developers agreed it could sway a decision about where to build a seniors housing community.

“I’m hearing instances of developers not moving forward with projects, or management companies not taking on projects because they can’t find the executive directors or the department heads to run them,” said Blumenthal.

— Camren Skelton

]]>Senior Living Communities Invest in Technology to Improve Resident Carehttp://rebusinessonline.com/senior-living-communities-invest-in-technology-to-improve-resident-care/
Thu, 06 Sep 2018 12:00:08 +0000http://rebusinessonline.com/?p=211782ATLANTA — As internet-connected technology continues to become ubiquitous in our everyday lives, residents at senior living facilities across the United States are using more and more devices. “From seven years ago to today, the average resident has gone from two devices to seven to nine devices,” said Kevin Merrill, business development director at Inviacom […]]]>

ATLANTA — As internet-connected technology continues to become ubiquitous in our everyday lives, residents at senior living facilities across the United States are using more and more devices.

“From seven years ago to today, the average resident has gone from two devices to seven to nine devices,” said Kevin Merrill, business development director at Inviacom during an “Investing in Technology” panel at the InterFace Seniors Housing Southeast conference. The event was held Wednesday, Aug. 29 at the Westin Buckhead hotel in Atlanta, drawing nearly 520 developers, lenders, investors and operators from the senior living space.

“Seniors are adopting the technology and bringing it into communities like you wouldn’t believe,” added Merrill. “We continue to see the evolution of technology pushing in and contributing to the improvement of every aspect of the community.

The panel was moderated by Matt Haywood, CEO of Tazergy, and tackled how seniors housing communities can invest in technology that both increases revenue and improves resident care.

Technology is changing the way that those in the senior living space do business, from Internet connectivity, keyless entry and digital signage to more efficient client relationship management (CRM) software.

It is even changing the way that residents decide where to live.

“People are now doing a substantial amount of their research over the Internet and the buyer is coming in extremely knowledgeable,” said Isakson. “You need to know where they are in the knowledge cycle.

“Early on when I got into this industry you trained people on taking a buyer when they walked in through the door all the way through to the close. Today’s buyer isn’t coming in at step one. They are coming in much later in the process.”

Other advancements in senior living tech include check-in systems, expanded security systems and tools for caregivers that make serving residents easier while retaining a personal touch.

“Ultimately at the end of the day we are trying to create fewer steps for our caregivers and create more hand-holding time,” said Marinko.

“We are trying to make data-based decisions,” he continued. “Business intelligence allows us to make decisions that aren’t subjective. We can figure out fall risk, times of falls, medicine management errors and staffing issues that are occurring on different shifts.”

And even more tech is coming down the pipeline to serve the growing needs of increasingly connected seniors.

Merrill, whose company Inviacom provides wireless Internet connectivity for entire communities, told the crowd in attendance that the need for connected senior living facilities is only going to grow.

“The communities have to be prepared that technology is coming,” he said. “Baby boomers are utilizing technology at home with multiple devices and they are going to be brining that technology with them.”

— David Cohen

]]>Retailers Ramp Up Industrial Presence to Service Their Stores, Customers, Say InterFace Panelistshttp://rebusinessonline.com/retailers-ramp-up-industrial-presence-to-service-their-stores-customers-say-interface-panelists/
Tue, 04 Sep 2018 11:30:35 +0000http://rebusinessonline.com/?p=211498ATLANTA — While the development pipeline for industrial real estate is at peak capacity, retail’s new store inventory is taking a back seat. Paul Xhajanka, division real estate manager of Kroger, said that his company is breaking from the past when it would open hundreds of stores a year. “If you look at our store count […]]]>

ATLANTA — While the development pipeline for industrial real estate is at peak capacity, retail’s new store inventory is taking a back seat. Paul Xhajanka, division real estate manager of Kroger, said that his company is breaking from the past when it would open hundreds of stores a year.

“If you look at our store count for the next three to five years, we’re only going to open 20 to 25 stores across our various platforms,” said Xhajanka, referring to Kroger’s portfolio of grocery brands, which include Mariano’s, Harris Teeter and Ralphs. “Target is opening 10 to 20 smaller stores a year, and even Walmart is down to 10 stores a year. All of us are shrinking our inventory of new stores down. Retailers are building more distribution centers, not stores.”

Xhajanka’s comments were made during the “Industrial Brokers and Expanding Retailers” panel at the first annual Intersection of Industrial and Retail in the Southeast conference, held Thursday, Aug. 23 at the Westin Buckhead in Atlanta. Sponsored by InterFace Conference Group and Southeast Real Estate Business, the half-day event drew more than 170 industrial and retail real estate professionals across the Southeast.

Retailers, along with global companies like Amazon and Wayfair, are the primary participants in the e-commerce sea change. According to most retail reports, e-commerce sales total between 9 and 10 percent of all retail sales, but some economists put that total closer to 13 percent.

Like most major retailers, Walmart is opening more distribution and fulfillment centers than new stores.

Whether or not it’s 9 or 13 percent, what’s clear is that e-commerce sales are increasing. Over the past five years e-commerce sales have grown at an annual rate of 15 percent compared to 2 or 3 percent for brick-and-mortar retail sales. Last year, e-commerce sales totaled $409 billion, and this year CBRE predicts sales will total $461 billion.

Chris Riley, vice chairman of CBRE’s Atlanta office and a panelist at the Intersection conference during the capital markets panel, says that for every $1 billion increase in e-commerce sales, a corresponding 1.25 million square feet of industrial space is required to handle the demand. For this year, an additional 65 million square feet of industrial space would be needed to support e-commerce’s expected $52 billion increase in sales.

“E-commerce can’t be replicated, it’s the most transformational demand driver that we’ve ever experienced,” said Riley about the overall industrial market, which is now seen by many as commercial real estate’s premier property type.

“It only took us 30 years for industrial to be the belle of the ball when you look across the four big food groups.”

Retailers are some of the most actively expanding industrial users, especially in the big-box distribution space. This week alone, prestige retailers have announced several major industrial projects across the country. These include Walmart announcing a $41 million center in Kentucky’s Bullitt County to fulfill online orders; The Container Store inking a deal for a new 600,000-square-foot distribution center in metro Baltimore; Best Buy signing a 500,400-square-foot lease near Baltimore to distribute products to its Mid-Atlantic stores; and Ross Stores leasing 1 million square feet of industrial space near Bakersfield, Calif.

Hibbett Sports, a Birmingham, Ala.-based sporting goods retailer with more than 1,000 stores, is expanding its distribution center south of Birmingham to include a fulfillment center. Tony Lago, vice president of logistics for Hibbett Sports, said retailers are taking on more industrial space because the breadth of their inventory is so large and reaching their customers efficiently is becoming more crucial now that shopping preferences have changed.

“The newer generation wants instant gratification, they want to receive their package very shortly after they order it,” said Lago. “Industrial space is needed to provide everything to everyone at any given time. We still have a bit of a gap to fill before we get there.”

Retailers Stretch to Reach CustomersIn addition to its new distribution center near Louisville, Ky., Walmart has taken great pains to expand in order to reach its customers, but not by the traditional method of opening new stores. The Arkansas-based retailer recently closed on its purchase of Indian e-commerce platform Flipkart and has aligned with a variety of partners, such as healthcare benefits provider Anthem, e-books retailer Kobo, robotics firm Alert Innovation, Detroit-based outdoor specialty retailer Moosejaw and celebrity Ellen DeGeneres.

Retailers like Walmart are innovating in an effort to both maintain their loyal customer base and increase market share. Delivery and logistics are a key component of the puzzle, especially for the major retailers.

In late 2017, Target acquired Shipt, a grocery delivery startup based in Birmingham. The move has helped Target improve its logistics to the point where it can offer same-day delivery in metros across the country.

Kroger announced this summer its partnership with Nuro, an autonomous vehicle startup for a “robo-delivery” service. Retailers like Kroger are thinking years ahead in order to anticipate the rapidly changing world of consumer shopping.

“The internet provides whatever you want, wherever you are and whenever you want it — that’s a huge paradigm shift,” said Kroger’s Xhajanka.

Earlier this year, Kroger struck up a partnership with online grocery delivery service Ocado. The British company uses robotics to process and fulfill grocery orders at its fulfillment centers, and Xhajanka says that the initiative will add to Kroger’s industrial presence.

“We’re going to be building at least three new distribution centers this year,” said Xhajanka. “That’s how we’re adapting to change: more distribution and fulfillment centers, as well as last-mile facilities in the communities we serve.”

Solving the last-mile conundrum was a frequently mentioned topic at the Intersection event. Panelist Matt Powers, executive vice president of JLL’s retail and e-commerce distribution division, says that education is sorely needed at the community level to get these last-mile facilities closer in to the population centers, which will ultimately help consumers get their products quicker.

“Communities need to accept zoning for modern truck terminals to help fulfill last-mile,” said Powers, who formerly worked at Walmart and was part of the team that helped roll out the company’s network of distribution centers. “These aren’t the truck terminals of the past, it’ll be smaller boxed trucks and vans servicing those [facilities].”

Lago of Hibbett Sports said that retailers are also using their physical stores to help solve the last-mile hurdle.

“We try to utilize every store for deliveries to minimize distance and cost,” said Lago.

Cold Storage is the Next Hot TicketAccording to CBRE’s Riley, grocers comprised about 35 percent of all food sales in the United States last year, and only 3 percent of grocers’ sales were made online, including through apps like Instacart. But with Amazon’s purchase of Whole Foods Market last year, Riley thinks there is clearly enough runway for grocers to move more product online.

“We’ve not seen this space take the same runway that we’ve seen for e-commerce in terms of hard and soft goods,” said Riley. “Amazon bought Whole Foods Market for a reason, they didn’t pivot into the grocery sector without a plan.”

A key component of this shift is cold storage facilities. Food purveyors like restaurant groups and supermarket chains make up the bulk of the tenancy of cold storage facilities, but the space isn’t as built out because developers aren’t encouraged to build it speculatively.

“No one builds spec cooler space, it’s too expensive,” said Riley. “It’s all been build-to-suit for the most part and that space has a 3 percent vacancy rate nationally.”

Demand is high for new cold storage space, so much so that developers are starting to build the specialty facilities on a speculative basis. Hunt Southwest recently broke ground on this 300,000-square-foot cold storage facility in Fort Worth, Texas.

One of the main reasons behind this trepidation is that lenders aren’t yet comfortable with the product type. There’s considerable lease-up risk and the required equipment makes these projects more expensive to build and operate than a typical industrial facility.

“Clearly there’s a driver for cold storage space, but anytime you’re lending on specialty properties you have to think about how much work you’re going to have to do to convert the property back to a distribution center if the cold specialty tenant leaves,” said Gary Bechtel, president of Money360, during the capital markets panel. “Any specialty space is problematic to finance, whether it’s biotech space or cold storage.”

Gregory Krafcik, vice president of Walker & Dunlop, expects lenders will eventually get excited about the product type, but says that it may take a few years to get to that point.

“Lenders aren’t good with innovative property types like cold storage, it takes awhile for them to get there,” said Krafcik. “As the space continues to transform, you’ll see more lenders get comfortable.”

Because of the increased demand for cold storage, some developers are taking on the financial risk to get these projects off the ground. In early August, Hunt Southwest broke ground on a 300,000-square-foot cold storage facility in Fort Worth, Texas. The project will feature 45-foot clear heights and will have the capacity to be served by rail.

In build-to-suit news, Publix recently announced that it has selected Greensboro, N.C., for its $300 million distribution hub to service stores in the Carolinas and Virginia. The refrigerated distribution center is scheduled to come on line in 2022.

JLL’s Powers says that more projects like these will be needed in the years to come as the big grocers and e-commerce companies are demanding more of the space.

“Walmart and Amazon would love to have spec cold storage on the market,” said Powers. “Companies haven’t gotten to the point where they’re doing a hard push, but that’s definitely coming because there’s demand.”

— John Nelson

]]>InterFace Panel: Seniors Housing Must Become ‘Sexier’ to Millennial Workforcehttp://rebusinessonline.com/interface-panel-seniors-housing-must-become-sexier-to-millennials/
Thu, 30 Aug 2018 11:58:22 +0000http://rebusinessonline.com/?p=211398ATLANTA — The seniors housing business is beset with labor concerns, and developers and operators are convinced that the solution lies in upping the number of millennials on staff. According to recent data from Pew Research Center and the U.S. Census Bureau, approximately 56 million American workers are between the ages of 21 and 36. That […]]]>

ATLANTA — The seniors housing business is beset with labor concerns, and developers and operators are convinced that the solution lies in upping the number of millennials on staff.

According to recent data from Pew Research Center and the U.S. Census Bureau, approximately 56 million American workers are between the ages of 21 and 36.

That means more than one-third of all labor force participants are millennials, a generation that industry experts say generally wants emotionally meaningful careers with fast-tracked advancement.

There are challenges in creating and marketing a positive perception of the seniors housing industry to prospective millennial workers, as well as in retaining them. This subject was broached during the “State of the Industry” panel at the InterFace Seniors Housing Southeast conference on Wednesday, Aug. 29. Held at the Westin Buckhead hotel in Atlanta, the event drew nearly 520 developers, lenders, investors and operators in the senior living space.

“There’s a lot of talent that’s drawn to hospitality, but it can be hard selling them on seniors housing,” said panelist Eric Mendelsohn, president and CEO of Tennessee-based REIT National Health Investors (NYSE: NHI). “We have to show people that there’s so much more to this business than serving Jell-O and walking residents to lunch.”

Panelist Sarabeth Hanson, president and CEO of Florida-based senior living developer and operator Harbor Retirement Associates, echoed Mendelsohn’s views on the staffing stresses the industry is facing. Hanson noted that the issue is very pressing given that millennials are expected to comprise more than 40 percent of the workforce by 2020.

“We’re all trying to figure out how to make seniors housing sexier to millennials,” she said. “Right now they’re thinking about the Jell-O and birthday bingo, and it’s just not where they want to be. They want to make a difference, think at high levels, be compensated well and have a [career path]. Seniors housing can offer all of those things, but we have to get the word out.”

An Emphasis on Lifestyle

Seniors housing operators in today’s market have become increasingly concerned with differentiating their communities by offering amenities that promote independence, variety and a vibrant social scene — the kind of lifestyle today‘s seniors want.

“The way we’ve characterized our industry during this cycle, the sales and marketing efforts, they’re centered on the care,” said Richard Hutchinson, CEO of Florida-based seniors housing developer and operator Discovery Senior Living. “While care is incredibly important, it’s only one component of the lifestyle. We need to be careful about how we’re marketing this perception, because there will be openings for others to provide seniors with more fulfilling lifestyles.”

This same line of thinking that emphasizes the overall lifestyle within seniors housing — not just the care component — must be invoked in order to draw more millennial workers into the industry, the panel agreed.

Hutchinson added that his son, a millennial, once casually suggested that Discovery’s communities integrate technology that gathers residents’ medical information directly into the infrastructure of the units. The technology would then streamline the information into a central database.

If implemented, such technology would increase operational efficiency by reducing the frequency of visits to the wellness center, saving money in the process. In addition, the technology would make medical proceedings less of a hassle for residents, thereby enhancing their lifestyle to some degree.

“New thought, new paradigms and ideas like that are necessities for our industry to continue to evolve,” said Hutchinson, whose company has begun partnering with colleges and universities to foster better awareness of what the industry can offer young people.

Labor Demand Won’t Slow

The combination of a strong housing market, low cost of capital and the daily retirement of 10,000 baby boomers has attracted numerous new developers to the seniors housing space in the post-recession era.

In addition, these economic and demographic factors have encouraged lenders to steadily direct capital into the space for the new projects of experienced, credit-worthy borrowers. The net result has been a good old-fashioned building boom. And more building means more demand for labor.

As the panel discussion wound down, moderator J.P. LoMonaco, president of California-based healthcare advisory firm Valuation and Information Group, steered the conversation to new development. He noted that “occupancies nationwide can be described as stagnant at best,” and that the industry has still yet to feel the impacts of a Silver Tsunami. But that hasn’t stymied the flow of new supply.

“Just about every one of our properties has two nearby competitors coming on line at the same time,” said panelist Doug Schiffer, president and COO of St. Louis-based Allegro Senior Living. “That affects short-term occupancy. But we’ve had no trouble sourcing capital or debt, and we don’t see that changing in the next eight to 12 months.”

The building boom has ensured that prospective residents have options. They can base their decision on whether to move into a community, or which community to move into, based on a variety of features, including the quality of a community’s staff, the panel concurred.

The growing number of properties also means that prospective employees — millennials or not — can be more selective about which seniors housing community in which they want to work.

“The new development leaves operators vulnerable in terms of resident and associate satisfaction,” said Hanson of Harbor Retirement Associates. “We have to make sure our associates are engaged and happy and won’t take a job down the street for 50 cents an hour more. We have to offer more in terms of culture, benefits, knowledge and advancement — and the same goes for residents.”

In the end, however, the means by which more millennials join the seniors housing industry may be rooted in simple economics. A high number of job openings in any industry during a period of low unemployment typically spurs wage growth because employers must offer more compensation to get positions filled. The question is, will developers have those trained, qualified employees in place by the time their next community opens?

— Taylor Williams

]]>Flexibility is Key to Staying Relevant in Today’s Industrial Market, Say InterFace Panelistshttp://rebusinessonline.com/flexibility-is-key-to-staying-afloat-in-todays-industrial-market-say-interface-panelists/
Tue, 28 Aug 2018 11:57:01 +0000http://rebusinessonline.com/?p=211175ATLANTA — The industrial sector is busy riding the e-commerce wave, pushing demand for warehouse space to new heights. But land scarcity and changing investor preferences are forcing developers to get creative with their projects, making flexibility a top priority in today’s market. “The industry is changing so quickly, and Amazon is driving that,” said […]]]>

ATLANTA — The industrial sector is busy riding the e-commerce wave, pushing demand for warehouse space to new heights. But land scarcity and changing investor preferences are forcing developers to get creative with their projects, making flexibility a top priority in today’s market.

“The industry is changing so quickly, and Amazon is driving that,” said David Welch, president of Robinson Weeks Partners, an industrial real estate development and investment firm based in Atlanta. “We’ve had to be as flexible as possible because the large users aren’t waiting for build-to-suits — they want it now.”

Welch’s comments were made during the industrial development panel at the first annual Intersection of Industrial and Retail in the Southeast conference, held Thursday, Aug. 23 at the Westin Buckhead in Atlanta. Sponsored by InterFace Conference Group and Southeast Real Estate Business, the half-day event drew more than 170 industrial and retail professionals from across the region.

Joining Welch on the panel were Todd Carter, partner at Exeter Property Group; Mike Demperio, partner and vice president of CRG; Brian Cardoza, senior vice president of Rooker; John Barker, president and chief operating officer of Red Rock Developments; and Alfredo Gutierrez, president of SparrowHawk, who moderated the panel.

Developers Look Beyond Last-Mile

Although infill and last-mile locations are still desirable if the deal can pencil out, the lack of available land and the need for larger facilities are pushing developers to look at markets on the outskirts of major population centers.

“The general sentiment is we’re going further out to find the land because you have to be flexible,” said Cardoza of Rooker. “You’ve got to be able to provide trailer parking, car parking and the room to expand.”

In July, discount retailer Five Below announced it would invest $70 million to build a new distribution center in Monroe County, roughly 60 miles southeast of Atlanta — a stretch outside the “last-mile” perimeter.

In addition, the desire for bigger, “future-proofed” facilities means that even if developers can find the land to develop within the last-mile, it must meet the size requirements desired by investors.

The pushing of clear heights and larger facilities has been a trend for a few years now, and that is going to continue, according to Demperio of CRG.

“The key component here is the larger facilities,” he said. “The beginning is just here. We’re not in the ninth inning, we’re in the top of the first.”

But it’s not the tenants that are demanding these features — in many cases, it is investors looking for a safe, long-term investment.

“It’s not so much the users demanding it more so than it’s the investors feeling comfortable if they’re buying with a longer-term perspective,” said Carter of Exeter Property Group.

Redevelopment Presents Opportunities

In order to make deals financially feasible, industrial developers are looking beyond sites typically zoned for industrial product.

“It’s a repurposing of location,” said Carter of Exeter. “We’re continuing to see those product types that once were ignored or discounted actually becoming very important to completing the supply chain for companies.”

CRG, the St. Louis-based real estate development arm of Clayco Inc., recently acquired a $60 million office building in Seattle, tore it down and built a warehouse on the site.

“In Seattle, the numbers work,” said CRG’s Demperio.

Robinson Weeks is the master developer behind Gillem Logistics Center, a 1,168-acre, master-planned logistics center that will eventually be able to accommodate more than 8 million square feet of e-commerce and distribution facilities. The site in Forest Park, Ga., is the former Fort Gillem Army Base.

“The site had about 5 million square feet of 1940s-era Army buildings, and we spent a lot of time looking at the cost of retrofitting and repurposing those,” said Welch. “The cost to rehab those just didn’t pencil out, but to spend the money to demolish them and put up brand new stuff is making all the sense in the world.”

Cardoza said Rooker has also looked outside the traditional realm to find developable sites, citing the company’s redevelopment of Shannon Mall in Union City, Ga. The development company acquired the site in 2014, seeing it not as dead retail space, but as an opportunity to acquire a large tract of land.

“We took a little bit of a risk on that project, but it’s now a 1 million-square-foot warehouse that Keurig occupies delivering K Cup pods,” he said. “Before the roof was even on, we had a lease.”

The site is also home to Atlanta Metro Studios, a movie studio. Incorporating uses besides industrial into these parks is becoming a more prevalent trend nationwide, setting the sector up well for the future.

In Houston, Hines is completing design for Grand National Business Park, a 1.5 million-square-foot mixed-use project that will include a logistics center, hotel and retail space. In Aurora, Colo., United Properties is developing Tower Business Center, which will include 450,000 square feet of industrial space as well as a 7-Eleven and Ronny’s Car Wash. The Denver-based development company is also underway on Enterprise Business Center, which features a little more than three acres of retail in front of a large flex/industrial development.

“Because of the evolution it’s going through and the purpose it serves now, industrial will continue to be a sought-after product type,” said Carter.

— Camren Skelton

]]>Smart Seniors Housing Developers Know How to Utilize Market Studies, Say InterFace Panelistshttp://rebusinessonline.com/smart-seniors-housing-developers-know-how-to-utilize-market-reports-say-interface-panelists/
Thu, 05 Jul 2018 11:59:44 +0000http://rebusinessonline.com/?p=207427CHICAGO — What are the limitations of a market study? In light of overbuilding concerns in some major metros, it’s a salient question. J.P. LoMonaco, president of Valuation & Information Group, moderated a panel discussion on the impact of market studies on new development during the InterFace Seniors Housing Midwest conference in June. The textbook […]]]>

CHICAGO — What are the limitations of a market study? In light of overbuilding concerns in some major metros, it’s a salient question.

J.P. LoMonaco, president of Valuation & Information Group, moderated a panel discussion on the impact of market studies on new development during the InterFace Seniors Housing Midwest conference in June.

The textbook definition of a market study is a comparison of supply and demand within a defined geographic area. It is a risk-assessment tool. Rick Banas, vice president of development and positioning at Gardant Management Solutions, considers a market study to be a snapshot in time that can help an owner or operator formulate strategies for developing a community.

“[A market study] helps you identify red flags, caution flags. It may provide a green light, but it is not the only element that can give you an indication whether a project is a go, no go, or whether it is going to be successful,” said Banas.

Dave Erickson, vice president of real estate development for the Ryan Cos., said one step he takes early on in the market study process is to mesh the National Investment Center for Seniors Housing & Care (NIC) data on supply and the Esri data on demographics with “our boots-on-the-ground knowledge.”

Alan Plush, president and senior partner at HealthTrust, which provides appraisal, valuation and advisory services to the industry, said he receives two types of phone calls from customers regarding market studies: one where the caller says, “we really want to know what the answer is,” and the other where the caller says, “here’s the answer, you need to validate it.”

“I hate the second call because it undermines the process,” said Plush, referring to developers who decide to build a project even before a market study is conducted. Over the years, Plush has learned that the “survivors” in the business are the development teams and operators that read every page of the market study beyond the executive summary to understand its finer points.

Art of defining the competition

Once the primary market area is defined, the next question the market study needs to address is who are the competitors in that particular market. Effectively answering that question appears to be both an art and a science.

The panel participants agreed that the age, occupancy rate and management of existing senior living communities — in addition to pricing — all are factors that need to be analyzed in the market study.

“I think that all competition should be considered. At the same time, you need to look and find out if a community is having occupancy difficulty. Is it one community in that particular target market area, or is it a wealth of communities?” asked Banas. “What is causing that one community — if it is one community — to have those occupancy difficulties? Is it something that’s explained?”

Another important factor to consider is how existing senior living communities in the marketplace are positioned, emphasized Banas. “What positioning strategies are they using to try to attract residents? In most cases it’s the same strategies, and the market study can help you identify how you are going to be able to find a niche in that particular marketplace.”

Erickson of the Ryan Cos. said if the rate at one of its planned senior living projects is $4,000 per month in a particular market but a competitor is charging $2,000 within the same geographic area, it’s clear that the competitor “is serving a different market.” In other words, it’s not an apples-to-apples comparison. “You really have to look at the rates to make sure that you are competing with the right supply,” said Erickson.

Newer doesn’t always mean better

Severine Petras, CEO and co-founder of Priority Life Care, said that it’s important to look beyond the age of a competing property to ask this important question: Has the property recently undergone a renovation? For example, an owner/operator may have increased the total number of units or expanded its delivery of services. “That goes back to not just reading the market report, but also getting some boots on the ground and asking questions,” said Petras.

The units of an older facility may be smaller, the hallways narrower, and the roof lower than today’s new product. But if the operator has done a good job managing the property, it can prove to be a formidable competitor, said Plush.

When conducting a market study, Plush never discounts a poorly managed property because that situation can easily be reversed with the correct operator in place. “If you have a building that has nice bones and it’s well maintained and the operator is just missing the mark, then that’s a competitor.”

The one-day InterFace Seniors Housing Midwest conference, which was held at the Marriott Marquis Chicago at McCormick Place, drew 372 professionals from across the region. Panel sessions focused on a range of topics including development, operations, design, technology, plus the capital markets.

Against the backdrop of elevated levels of construction, rising interest rates and operational challenges in seniors housing, Columbia Pacific Advisors is scrutinizing operators heavily before providing funding. “We’re bridge lenders. That is all that we do. Our average loan is 19 months. It’s a short horizon of how far away our exit is, so we need to make sure that [pathway] is very real and clear,” said Meyer.

Meyer’s insights on the loan underwriting process came during InterFace Seniors Housing Midwest on Thursday, June 7. The one-day event, which took place at the recently opened four-star Marriott Marquis Chicago at McCormick Place, drew 372 professionals from across the region. Panel discussions focused on everything from design to development to growth strategies for operators, in addition to the state of the capital markets.

Given the large amount of capital flowing into seniors housing, along with the entrance of new owners and operators into the burgeoning property niche, Taylor asked the panel what they are doing differently today from an underwriting perspective when poring over loan applications.

“The difference now is you stress test,” explained Meyer, in reference to today’s choppy seniors housing market that is facing declining occupancies nationally.

That means Meyer and his team ask themselves some key questions when reviewing loan applications. What happens if the operator can’t get the rents that it was hoping for, or if occupancy is softer than expected, or if interest rates rise more quickly than projected? “These are the types of questions that we have to feel comfortable with, knowing that if all of [these events] happened, are we still OK? Do we still like the opportunity?”

Gardner of BMO Harris Bank said that eight years ago the operating margins for seniors housing (excluding skilled nursing) were 40 percent on average. Today, the norm is about 30 percent. In a follow-up interview, Gardner explained that the lower margins are the result of three factors: (1) limits on rent growth within the primary market areas; (2) lower occupancies on average; (3) increases in variable and fixed-rate operating expenses, especially labor costs.

“What we’re doing is really honing in on the fundamentals — understanding pro formas, understanding how rent increases and operating expense cuts are going to be achieved. Those types of things,” said Gardner.

The alignment of the operator’s core competency with what it is trying to achieve is critically important from BMO’s point of view, said Gardner, especially at a time when boosting rents can prove to be quite challenging in certain markets. Similarly, cutting operating expenses comes with its own set of issues. “We want somebody that has been effective at doing that in the past.”

Adlerstein of Meridian Capital Group said that much of his job today as a mortgage banker is to manage borrower expectations — perhaps even tamping them down a bit. “Back in the day when we first started, we had people throwing deals at us,” recalls Adlerstein who joined Meridian in 2011 and has closed about $3 billion in the seniors housing and healthcare space over the course of his career.

At one point it was not uncommon for borrowers to seek 95 percent loan to cost on transactions, he said. In short, borrowers sought and often received maximum leverage and cheap pricing.

“We had a good run with that for awhile, but there is no question that the market has changed,” said Adlerstein. Today, 85 percent loan to cost would be a stretch, even for skilled nursing properties. Such a deal would likely involve a value-add play in a submarket where the upside potential is clear and imminent, and the facility is aided by favorable demographics and fills a void in the marketplace in terms of delivery of care.

Construction dollars available

BMO is still doing construction lending all over the country, but the bank is requiring “at least some recourse” on all of its construction deals, said Gardner. “I don’t think that we’re doing anything differently. We’re just doing a deeper dive in our due diligence to make sure that the joint ventures have the collective expertise and experience to execute on their business plan.” BMO also makes sure the project is adequately capitalized to withstand any “hiccups” that are bound to occur, he added.

Robinson of MB Financial said the company has a bucket of dollars available for making construction loans to borrowers that it has a relationship with and that have a proven track record of success. “We’re being fairly guarded, but we’re open for business.”

Taylor, the panel moderator, said that for every five proposals to finance seniors housing development projects received by First Midwest Bank, his team takes a pass on four of them. Why? The market studies are typically dated and the bank often knows more than the developers about the markets in which they seek to build.

“Yet those projects are still getting financed and still getting done,” said Taylor. “So, it kind of speaks to the amount of capital that is chasing the sector.”

— Matt Valley

]]>Healthcare Systems, Physicians are ‘More Sophisticated’ When it Comes to Real Estate, Says InterFace Healthcare Panelhttp://rebusinessonline.com/healthcare-systems-physicians-are-more-sophisticated-when-it-comes-to-real-estate-says-interface-healthcare-panel/
Wed, 13 Jun 2018 20:12:03 +0000http://rebusinessonline.com/?p=205874CHARLOTTE, N.C. — Healthcare systems and physicians groups once viewed their real estate operations as a line item on a ledger and not as high a priority as staffing, education or equipment. In the years since reimbursements from Medicare began tightening as it went from a fee-for-service model to an outcome-based one, healthcare systems and […]]]>

CHARLOTTE, N.C. — Healthcare systems and physicians groups once viewed their real estate operations as a line item on a ledger and not as high a priority as staffing, education or equipment. In the years since reimbursements from Medicare began tightening as it went from a fee-for-service model to an outcome-based one, healthcare systems and physicians are getting more savvy when it comes to their real estate strategies.

“With respect to real estate, healthcare systems used to be naïve,” said Mark Curtis, director of Greenville Health System, a not-for-profit system serving the Upstate South Carolina area. “Now they’re far more sophisticated than they were five years ago.”

Curtis was one of five healthcare real estate experts on stage at a panel entitled “What Do Hospitals & Systems See Coming in 2018?” Rex Noble, senior vice president of asset management at Flagship Healthcare Properties, moderated the discussion.

The panel was the closing act at the eighth annual InterFace Healthcare Real Estate Carolinas show, which took place on May 31 at the Hilton City Center hotel in Uptown Charlotte. The event drew 160 attendees in the healthcare real estate space from across North and South Carolina.

The hospitals and healthcare systems panel was the closing act of the eighth annual InterFace Healthcare Real Estate Carolinas conference.

Operations are Under the Microscope
Spurred on by lower reimbursements and increasing expenses due to inflation, healthcare systems are taking a holistic view of their business strategies. As a result, a higher priority is given to real estate than ever, according to the panel.

“We’re absolutely trying to be more sophisticated with our real estate,” said Tony Perez, vice president of real estate at Atrium Health. Formerly known as Carolinas HealthCare Systems, the not-for-profit group operates more than 7,600 beds across 900 care locations. “Five years ago we weren’t talking about yields coming in and cap rates going out, we were talking about rental rates.”

Atrium Health recently announced it plans to invest more than $1 billion in the next seven years around the metro Charlotte area. At the same time, Perez said the company is focused on cutting expenses, including on the real estate side.

“We are absolutely trying to cut expenses — $300 million by 2020,” said Perez. “Last year we did $35 million and we’ve already done $35 million this year, but our goal this year is $95 million. Everyone is going to bleed, and on the real estate side, capital is scarce.”

Healthcare real estate professionals are looking internally at doctors’ daily practices in order to drive efficiencies as well. Elisa Cooper, director of property management at Roper St. Francis Healthcare, a nonprofit healthcare system in Charleston, says that real estate sustainability is now prioritized over expansion.

“We’re driving down operations to the metrics of how many patients touch an exam room,” said Cooper. “If a physician can’t put five patients a day in that exam room, they don’t need it. We take it out and add another doctor’s office.”

On the development side, site selection is in the limelight for healthcare real estate professionals because patients now want ease of access to their medical care more than anything, according to the panel.

“The ‘build it and they will come’ days are long gone,” said Greenville Health’s Curtis.

Perez says that healthcare groups are still novices when it comes to site selection for hospitals and medical centers, but soon they will have the capabilities and resources on the same level as major retailers.

“I don’t theorize a lot, but I’d say that large health systems will be as proficient as Target and Walmart about sites in the future,” said Perez.

Physicians themselves are looking at real estate in a different light too, according to the panel. Curtis said that physicians are more actively involved in operation expense discussions as they look to get better returns on their real estate investments.

“If I look at where physicians are in those conversations, they’re partners at the table,” said Curtis. “Physicians are looking at what we do and how we deliver care and what that cost is.”

“When I first came into the business 14 years ago, our meetings with the doctor groups were all about how big could we build it and how pretty could we make it,” added David Park, senior vice president of Novant Health. The Winston-Salem, N.C.-based healthcare network operates 14 medical centers and more than 500 physicians clinics and outpatient centers across North Carolina, South Carolina, Georgia and Virginia.

“The conversation today with the doctors are more around trimming the size down and cutting the costs,” said Park. “It’s a new level of education for the entire core of the healthcare industry.”

Caring for Millennials
In addition to dwindling reimbursements, healthcare systems are also feeling the pinch from the rise of millennials, who by and large are shifting the way healthcare is provided. Atrium Health’s Perez doesn’t think that millennial preferences will eliminate the need for brick-and-mortar medical office buildings, but their presence is certainly felt.

“Millennials will bend the curve for some specialties, family practices and maybe urgent care,” said Perez, who emphasized what Atrium Health is preparing for in its consumer readiness program. “Our view is that one day you’ll be able to use your phone, be able to virtually talk with a physician who will order your drugs and then a drone will drop it off at your house.”

“We’re planning for today, but really we can’t plan for today. We have to plan for 10 years from now,” added Cooper of Roper St. Francis.

Cooper said that millennials are propping up the urgent care business model and are electing not to visit or even select a primary care physician. She doesn’t envision this as a long-term trend as millennials are aging and will eventually need more services than they currently receive.

“They don’t go to primary care doctors unless they’re really sick and they don’t go in for checkups unless they’re forced to by their employer,” said Cooper. “Millennials today will actually need the healthcare service that they don’t think they need today.”

Jeff Brown, principal of healthcare real estate advisory firm Meadows & Ohly LLC, said that millennials’ preferences for healthcare are forcing healthcare systems to walk a tightrope between planning for an uncertain future and making sure that the current needs of aging baby boomers are being met.

“It’s going to be a balancing act,” said Brown. “Being on the real estate side, we’re trying to figure out where the right bets are.”

In the near-term, Brown said that millennials are changing the way healthcare groups are looking at their operations as they strive to maximize traffic in that age cohort.

“More than anything healthcare systems are talking about their ambulatory and digital strategies,” said Brown. “It’s been proven urgent care doesn’t work from a profitability standpoint, but from a need and access standpoint it does work for millennials.”

— John Nelson

]]>Competition Intense Among Real Estate Lenders, Says InterFace Carolinas Panelhttp://rebusinessonline.com/competition-intense-among-real-estate-lenders-says-interface-carolinas-panel/
Thu, 07 Jun 2018 11:30:14 +0000http://rebusinessonline.com/?p=205424CHARLOTTE, N.C. — Capital One Multifamily Finance’s Chad Thomas Hagwood kicked off with a fastball. When prompted with the often used “what inning are we in?” question, Hagwood’s response was indicative of how competitive commercial real estate lending is today. “I don’t know what inning we are in of the cycle, but I know I […]]]>

CHARLOTTE, N.C. — Capital One Multifamily Finance’s Chad Thomas Hagwood kicked off with a fastball. When prompted with the often used “what inning are we in?” question, Hagwood’s response was indicative of how competitive commercial real estate lending is today.

“I don’t know what inning we are in of the cycle, but I know I want to play ball,” says Hagwood, senior vice president of Capital One Multifamily Finance. “People are after it, and we intend to fight it out tooth and nail.”

The most intense competition for financing is in the multifamily space because of the proliferation of Fannie Mae and Freddie Mac and their designated lenders.

The two government-sponsored enterprises (GSEs) have been competing against each other as well as other lenders. Hagwood describes the competition between the two agencies as a “bloodbath.”

“It’s all out brutal warfare competition the two,” says Hagwood. “I do expect Fannie and Freddie to be very competitive for the foreseeable future.”

Berkadia arranged a 10-year Freddie Mac acquisition loan on behalf of the buyer of High Ridge Landing (pictured) in South Florida’s Boynton Beach. Freddie Mac is coming off a record-breaking 2017 and also had the highest first quarter on record, according to the MBA.

Both agencies are coming off the highest multifamily loan volume in their history. So far this year, the panelists have noticed that Fannie and Freddie are upping the ante.

“They’ve done things with their terms and structures that have made them very competitive with life companies,” says Nick Heinzelmann, vice president and managing director of Lincoln Financial Group, a life insurance company. “Life companies used to have the advantage, but the agencies have caught up.”

Both life companies and the agencies are starting off 2018 on the right foot. The Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations reports that life companies, Fannie Mae and Freddie Mac all had their strongest first quarter on record for originations.

In addition to those lenders, banks are also competing for deals. Hugh Allen, senior vice president of TD Bank, says that the runoff from construction loans paying off early has been a “rallying cry” for banks as that activity provides them an opportunity to get in the mix on deals.

“More banks are stepping up. We’re not going to be competitive on some of our terms, but we’ve been given this gift of spread compression,” says Allen, who oversees TD Bank’s commercial real estate business in the Carolinas and Georgia. “We’re a little more competitive with the life companies, and we’re winning more business. We’re seeing a lot of packages where there are as many banks at the table as there are life companies competing on lower-leveraged deals.”

Overall, commercial and multifamily originations in the first quarter are up 1 percent compared to first-quarter 2017, according to the MBA. With overall loan volume up and competition intensifying, Hagwood says it’s a great time to be a borrower as they have multiple capital options at their disposal.

“It’s a unique opportunity for the borrowing community right now because it wasn’t too long ago that it was a one-size-fits-all solution,” says Hagwood. “The beautiful thing for owners and operators is that everyone is open for business and operators are standing by. It’s about your property and what you need to accomplish with your business plan.”

Property Types in the Spotlight
Multifamily remains a very active property type for lenders, but some worry about saturation in top submarkets. Lincoln Financial’s Heinzelmann says that his shop has taken a “wait-and-see approach” on financing some apartment projects that have been recently delivered.

“We’ve tapped the brakes some on pre-stabilized assets,” says Heinzelmann. “It’s difficult to know where the rental achievement ultimately will be and many of the sexier markets have concessions built in.”

The panel also agreed that industrial’s long-term health in North and South Carolina bodes well for lenders looking to finance both core assets and value-add opportunities.

“We like the Carolinas for industrial. We see growth in the shipping industry and ancillary businesses,” says Richard Caldwell, senior vice president of Revere Capital.

“We’re looking for the opportunistic, value-add plays around the country, and in the Carolinas we’re pursuing vacant industrial,” adds David Cohen, managing director of Ready Capital Structured Finance.

The panel didn’t touch on financing retail or hotel properties, but they did discuss the opportunities and pitfalls lending on office projects. Caldwell says that office demand is more market dependent than other property types because it’s so sensitive to outside factors.

“It really depends on where you are,” says Caldwell. “I worry about office with the continued consolidation of how much space is required for businesses. The use of office won’t go away, but fundamentally companies are able to save so much money by packing more bodies into a small amount of space and/or have people work from home.”

Pictured is the WeWork Charlotte location at Stonewall Station in Uptown Charlotte. Co-working concepts like this are taking off across the country, and lenders are open to financing these ventures but worry about the fit-out required to bring these projects to fruition. (Photo courtesy of WeWork)

Cohen mentioned that co-working office space has become an active play for lenders, as the trend is taking off in top markets around the country with the expansion of concepts like WeWork, Spaces, Serendipity Labs and Industrious.

“For co-working spaces, it depends on what the business plan is,” says Cohen with regard to how he perceives its viability. “The fit-out is definitely an issue that we have an eye on.”

— John Nelson

]]>‘Broadening’ Economy on Track for Longest Expansion Cycle in U.S. History, Says Wells Fargo’s Mark Vitnerhttp://rebusinessonline.com/broadening-economy-on-track-for-longest-expansion-cycle-in-u-s-history-says-wells-fargos-mark-vitner/
Tue, 05 Jun 2018 11:47:33 +0000http://rebusinessonline.com/?p=205248CHARLOTTE, N.C. — It’s been nine years since the Great Recession ended, and if the economy can make it to June 2019 without suffering a relapse, it will be the longest business cycle in U.S. history. Mark Vitner, managing director and senior economist of Wells Fargo Securities, believes that will happen because of how broad-based […]]]>

CHARLOTTE, N.C. — It’s been nine years since the Great Recession ended, and if the economy can make it to June 2019 without suffering a relapse, it will be the longest business cycle in U.S. history. Mark Vitner, managing director and senior economist of Wells Fargo Securities, believes that will happen because of how broad-based the recovery has been.

“For the most part, over the last nine months to a year all 50 states have been growing, which is something that hasn’t happened before,” says Vitner, who is based in Wells Fargo’s Charlotte office. “Typically, when the economy broadens it makes for a more durable expansion. When the strength of the economy begins to narrow, with fewer industries and states expanding, that’s usually a sign that a recession is a year to 18 months ahead.”

Vitner’s commentary came during his keynote address at the ninth annual Carolinas InterFace conference. The half-day event, which took place on Thursday, May 31 at the Hilton Charlotte City Center hotel in Uptown Charlotte, drew 212 attendees from across the commercial real estate industry in North and South Carolina.

The ninth annual InterFace Carolinas conference attracted 212 attendees across the commercial real estate continuum in North and South Carolina.

Vitner forecasts the GDP to grow by 3.3 percent in the second quarter and 3 percent for the rest of the year. (Source: U.S. Department of Commerce and Wells Fargo Securities)

With both job growth and export activity healthy so far this year, Vitner predicts the gross domestic product to grow by 3.3 percent in the second quarter.

“And we’re expecting the economy to grow 3 percent for the rest of this year,” says Vitner.

Tax Reform’s Positive Effects
Vitner believes that the Tax Cuts and Jobs Act will prove to be a major catalyst for economic growth. The economist says that the law’s most powerful attribute is the “substitution effect” it creates across multiple facets of the economy. For one, Vitner says tax reform should encourage hiring and retention, which would boost the labor force participation rate. The rate was 62.7 percent in May, compared with 66.1 percent in May 2008.

“One of the things that has been holding back the economy is the labor force participation rates have been really low,” says Vitner. “By lowering marginal tax rates, hopefully we’ll be able to pull more people into the workforce and also hold on to older workers who are retiring. They see that they get to keep more of their paycheck so they’ll stick around longer.”

Another substitution effect created by tax reform is capital expenditures for labor as companies are reinvesting in their operations, which Vitner says should boost productivity.

Source: U.S. Department of Labor and Wells Fargo Securities

“Coming out of the Great Recession companies were hiring temporary and contract workers instead of hiring full-time staff. You don’t spend a lot of money training contract or temporary workers, so productivity growth languished to 0.8 percent a year,” says Vitner.

An increase in worker productivity would clear the runway for even greater gains in wages. Vitner says the hope will be for productivity to reach 2.5 percent in the next couple years so that wages can stay ahead of inflation.

“Wages can only grow as fast as productivity,” says Vitner. “If a company increases the pay of its workers faster than their productivity grows, it’s a mathematical certainty that that company will go out of business.”

Interest Rates on the Rise
During Vitner’s keynote address, the economist predicted that the Federal Open Markets Committee (FOMC) will raise the federal funds rate three more times this year — at its meetings in June, September and December.

“The Fed would like to normalize interest rates,” says Vitner.

If the FOMC decides to raise the rate by a quarter percentage point at that clip, the federal funds rate would be 2.5 percent by year’s end. Beyond having a widespread effect on borrowing activity, raising interest rates may push the economy into the dreaded inverted yield curve territory, economists fear.

An inverted yield curve is the point at which the 10-year Treasury yield is lower than the federal funds rate. (As of Friday, June 1, the 10-year Treasury yield was hovering at 2.89 percent.)

According to Investopedia, an inverted yield curve has preceded every U.S. recession since 1956 and is thought to signal to market participants that the long-term outlook for the economy is poor and that yields offered by long-term fixed income will continue to fall.

“If an inverted yield curve happens, a recession is a year away,” says Vitner. “I don’t expect that to happen until late 2019 or 2020.”

— John Nelson

]]>E-Commerce, Business Relocation Feed Growth in Las Vegas Industrial Markethttp://rebusinessonline.com/e-commerce-business-relocation-feed-growth-in-las-vegas-industrial-market/
Tue, 01 May 2018 12:00:27 +0000http://rebusinessonline.com/?p=202678LAS VEGAS — The Las Vegas industrial market was built on supporting the city’s tourism and hospitality industry, which brings in nearly $60 billion per year, according to a study by Applied Analytics. But in recent years, the segment has evolved and grown thanks to the emergence of e-commerce and the harsh market conditions of […]]]>

LAS VEGAS — The Las Vegas industrial market was built on supporting the city’s tourism and hospitality industry, which brings in nearly $60 billion per year, according to a study by Applied Analytics. But in recent years, the segment has evolved and grown thanks to the emergence of e-commerce and the harsh market conditions of nearby Southern California.

A panel at the InterFace Las Vegas Industrial conference, held at the Four Seasons Hotel in Las Vegas on April 24, brought together eight regional developers and owners to discuss the changing state of the Las Vegas industrial market in 2018.

Included on the panel were Michael Dermody, CEO at Dermody Properties; Taylor Arnett, vice president at CapRock Partners; Kevin Higgins, senior vice president and partner at CBRE; Doug Roberts, partner at Panattoni Development Co.; Fritz Wyler, managing director at Prologis; Rod Martin, director of development at Majestic Realty Co.; and Jordan Schnitzer, president at Harsch Investment Properties. Phil Ralston, president at American Nevada Co, moderated the panel.

“Historically, the Southwest [Las Vegas] submarket has brought a premium in rents [compared] to what you see in the other submarkets, and 80 percent of the tenant base there is doing business on the strip,” said Martin. “Over the last five years, the North Las Vegas submarket has become the largest single submarket in regards to square footage. Really, the switch was flipped with the emergence of e-commerce.”

Traditionally, the Las Vegas industrial market has been based on serving the roughly 200,000 people staying on the Las Vegas strip, he explained. But now, much of the gaming and resort activity, which drove the market through the last cycle, is being replaced by infrastructure supporting the booming e-commerce industry.

The North Las Vegas submarket currently has an inventory of 40.2 million square feet, compared with 30.4 million square feet in Southwest Las Vegas, according to CoStar Group.

Las Vegas has become a fulfillment hub for Southern California, which can be reached in a one-day drive and is a regional center for merchandise returns over much of the Western United States.

“With the change in e-commerce, this is a market where you could count on one hand the number of buildings over 500,000 square feet during the last [development] cycle,” said Wyler. “Now several of us here are focused on constructing buildings that can be 500,000 to 800,000 square feet.”

California Flight

Many companies are moving their operations away from Southern California, where the cost of doing business has become too expensive, and have opened up shop in Las Vegas, prompting the development of large industrial properties in the North Las Vegas submarket.

“I can point to five or six different deals that I’ve seen where tenants have come out of the California portfolio and moved here,” said Wyler. “That’s going to continue as California is only getting more expensive.”

“From a developer and investor standpoint, vacancy rates in Orange County, California, for example, have been below 2 percent for the past five years,” said Arnett. “Land prices there for industrial product are approaching $60 per square foot.”

The competition in Southern California has driven many tenants to Las Vegas, he added. Industrial vacancy rates in Vegas are at the lowest point ever despite the surplus of new product coming online. Rents and values in Las Vegas are still below peak value.

But with tremendous growth in the most recent economic cycle for the Las Vegas industrial market, there is concern over how long it can last. Moderator Phil Ralston posed the question to the group of what “inning” they think the market is in and if Las Vegas is a boom or bust market.

“I look back at some of the decisions I made in 2006-2007. You start to hear some of the same buzzwords, and that’s what’s scary,” said Schnitzer. “We all know this can’t continue to go up forever.”

“At the same time, in this market we’ve never seen this kind of growth, diversification and balance,” continued Schnitzer. “We are in the eighth inning, but what you just don’t know is how long that is.”

“I think it’s the seventh inning stretch and I don’t know how long that stretch is going to be,” said Higgins. “In the last turnaround, we were in every food group imaginable developing — whether it was freestanding buildings, small flex, mid-bay, you name it. That was the real tip of the iceberg and kind of the beginning of the end.

“What’s different about Las Vegas now is that people really underestimate the power of that tidal wave coming from Southern California to us.”

]]>InterFace Panel: Houston Is Not Over-Retailed. In Fact, It Needs Morehttp://rebusinessonline.com/interface-panel-houston-is-not-over-retailed-in-fact-it-needs-more/
Thu, 26 Apr 2018 12:00:48 +0000http://rebusinessonline.com/?p=202258HOUSTON — Retail follows rooftops, as the expression goes, but over the last decade in Houston, brick-and-mortar development and single- and multifamily construction have rarely moved at the same pace. Houston experienced a major housing boom in the years leading up to the oil downturn, which began in late 2014. A report from houstonproperties.com, which […]]]>

HOUSTON — Retail follows rooftops, as the expression goes, but over the last decade in Houston, brick-and-mortar development and single- and multifamily construction have rarely moved at the same pace.

Houston experienced a major housing boom in the years leading up to the oil downturn, which began in late 2014. A report from houstonproperties.com, which tracks the metro’s single-family market, notes that Houston topped the nation in new construction starts of single-family homes in 2013 and 2014.

In addition, during that two-year stretch there were 28 high-rise apartment buildings under construction, and 83 additional high-rise multifamily projects either approved or proposed.

Houston’s emergence as a strong-performing retail market in an era where brick-and-mortar shopping is on shaky ground was one of the key topics explored by real estate professionals at the second annual InterFace Houston Retail Real Estate conference. Crowds packed into the meeting rooms of the Royal Sonesta hotel in the city’s Galleria neighborhood on Tuesday, April 17 to hear about just how much new retail development the market can bear.

Before retail development could catch up to the torrid pace of housing development, oil prices tanked, thousands of blue- and white-collar energy workers were laid off, housing prices dropped and rent growth in the apartment sector stagnated. And by the time oil prices began rising again in 2016, the e-commerce boom was well underway, threatening the future of brick-and-mortar retail.

“If you look back at the arena from 2009 to 2013, there was very little new retail space being built,” said panelist Dean Lane, a partner at NewQuest Properties. “For the retail projects currently being built, the housing and population densities are already there. Retail developers are being cautious, but at the same time doing deals where there’s real opportunity.”

According to CoStar Group, the Houston area added less than 3 million square feet of retail space annually between 2010 and 2013. This modest rate of development kept the inventory growth under 1 percent in each of those years. Annual net absorption kept pace during that stretch, ranging from approximately 2.7 million to 5.6 million square feet at different points in the span.

Retail development throughout the Houston area cranked up between 2016 and 2017, two years in which the market added more than 6 million square feet of new space. CoStar projects the overall supply of retail space to increase by approximately 5.8 million square feet by the end of 2018, a 1.5 percent increase in the total inventory.

Today, as retailers across the country adapt to e-commerce and oil prices continue their ascent, the discrepancy between the paces of retail and housing development has proven to be a blessing in disguise.

Unlike its office and multifamily sectors, Houston’s retail market boasts strong metrics that do not preclude continued growth and expansion.

Strong Metrics Are Nothing NewIn both commercial and residential real estate, job and population growth are the straws that stir the drink. But whereas the fundamentals of office and industrial markets are more directly tied to job creation, the metrics of housing and retail sectors are more immediately influenced by population growth.

“Where there’s people, there’s going to be retail,” said panelist Lilly Golden, president of Evergreen Commercial Realty. “The population of metro Houston is projected to exceed 14 million people by 2050, which means the market can not only bear new retail development, it needs it.”

Whether oil is trading at $40 per barrel, $100 per barrel or its current price of about $68 per barrel, Houston is a perennial leader in population growth. According to a 2017 study from the U.S. Department of Housing & Urban Development (HUD), Houston’s population grew by an average of roughly 120,000 residents per year in the 2000s and 134,000 in the 2010s. The metro area’s total head count currently measures somewhere around 7 million.

Healthy population growth has sustained development of new retail space and absorption of existing retail space in Houston for years. According to CoStar’s first-quarter 2018 report, Houston’s retail market has experienced 10 consecutive years of positive net absorption. This strong tenant demand also enabled landlords in the metro area to achieve annual rent growth of more than 2 percent between 2010 and 2017.

The metro’s vacancy rate declined every year between 2007 and 2016. Between 2016 and 2017 it rose from 4.7 percent to 5.3 percent, an uptick that was to some degree tied to Hurricane Harvey’s rendering some retail spaces uninhabitable.

Developers, Investors RespondThe stability of these metrics has encouraged new retail construction in recent years. More than 200 retail properties totaling roughly 4.6 million square feet are currently under construction, with 69.4 percent of that space already preleased.

Ground-up development of new space is largely concentrated in the suburbs. In particular, suburban pockets along Grand Parkway on the city’s north and west sides have emerged as hotbeds for retail development.

Xscape Theatres’ new venue in Katy will be able to accommodate as many as 1,530 guests. The opening is scheduled for October.

In the western suburb of Katy, a 121,000-square-foot VillaSport Athletic Club & Spa is set to break ground this summer. Construction is also underway on The Crossing at Katy Fulshear, a Walmart-anchored development that will feature a 12-screen Xscape Theater come October.

On the north side of town, ExxonMobil’s development of a 385-acre office campus in Spring, about 25 miles north of downtown, has been a major catalyst for retail development, according to the InterFace panel. That project was completed in 2015.

Strong fundamentals have also helped maintain a robust investment market for retail assets in Houston.

“We are not seeing a slowdown in retail investment,” said moderator Dave Luther, first vice president and regional manager at Marcus & Millichap. “As Houston rebounds, the city is attracting more out-of-area capital. We’re seeing deals become more competitive with exchange money as well.”

Luther added that investors are particularly hot for properties that feature small-shop spaces, and that multi-tenant assets are generally trading at cap rates somewhere between 6.5 and 7.5 percent.

Entertainment is KingE-commerce has claimed its fair share of victims. Nearly 7,000 stores either closed or announced plans to close in 2017, and 2018 has already seen the bankruptcy of major retailers like Toys ‘R’ Us, Nine West and Bon-Ton.

But for every company that closes a store, there are three companies opening new stores, according to a 2017 report from Tennessee-based retail advisory firm IHL Group. As new concepts in food, fitness and entertainment spaces grow in Houston, developers are increasingly undertaking value-add plays in the urban core.

“We’re seeing everything from go-karting to axe-throwing,” said Golden of Evergreen Commercial. “If you have a creative concept, you can fill the retail space, and we’re seeing that in Houston.”

Demand for these kinds of tenants, particularly entertainment concepts, was virtually nonexistent in Houston in the past, according to Lane of NewQuest.

“The entertainment industry has always been a great arena for retail,” he said. “But in the past, there were so many leases that prohibited bowling alleys, movie theaters — anything that took a lot up a lot of parking.”

— Taylor Williams

]]>It’s the Ideal Time to Buy in Houston Multifamily Market, Says InterFace Panelhttp://rebusinessonline.com/its-the-ideal-time-to-buy-in-houston-multifamily-market-says-interface-panel/
Thu, 19 Apr 2018 12:00:17 +0000http://rebusinessonline.com/?p=201822HOUSTON — After several years of sluggish rent growth, heavy concessions and tepid absorption brought on by the oil slump, investors are returning to Houston’s multifamily market with quite a bang. Rent growth and absorption were particularly weak in the city’s Class A multifamily space over the past few years. But with oil prices stabilizing […]]]>

HOUSTON — After several years of sluggish rent growth, heavy concessions and tepid absorption brought on by the oil slump, investors are returning to Houston’s multifamily market with quite a bang.

Rent growth and absorption were particularly weak in the city’s Class A multifamily space over the past few years. But with oil prices stabilizing (currently at about $68 per barrel of West Texas intermediate crude) and overall population growth still booming, multifamily investors are rethinking their positions on the Bayou City.

“For the past two or three years, capital had been going elsewhere,” said Bruce McClenny, president of Houston-based research firm Apartment Data Services, during his keynote address at the second annual InterFace Houston Multifamily conference. “But that’s about to change.”

Panelists at the event agreed that Houston’s construction pipeline for new apartments is thinning, stabilized properties are being brought to market and sellers are seeing more bids on assets they’re marketing. All this activity points to a previously overbuilt market turning the corner.

Multifamily developers, lenders and brokers discussed these trends and others at the conference, held on Tuesday, April 17 at the Royal Sonesta Hotel in Houston’s Galleria neighborhood. The event drew about 150 real estate professionals.

A Capital-Rich Market

A hefty amount of capital in the national multifamily investment market is among the more impactful drivers of heightened demand for Houston’s multifamily inventory. Approximately $33 billion in private equity funds for multifamily investment was raised during the first quarter of 2018, according to data from Berkadia.

The abundance of capital has been available throughout the oil slump, which began in late 2014 and bottomed out in early 2016. But multifamily investors largely steered clear of Houston during that stretch.

McClenny pointed to the displacement of single-family residents by Hurricane Harvey, which struck the Houston area in August 2017, as the chief driver of the multifamily market’s turnaround. He noted that the sector closed 2017 with positive rent growth of 4.4 percent and positive net absorption of approximately 18,000 units.

By comparison, Houston posted -0.1 percent rent growth and net absorption of about 4,600 units in 2016, according to data from Apartment Data Services.

Overall occupancy ended the year at 89.7 percent, up from 88.4 percent at the end of 2016.

Houston’s multifamily fundamentals improved dramatically toward the end of 2017 following Hurricane Harvey.

This reversal of market fundamentals, combined with the 63,000 new jobs that the city added in 2017, has private and institutional investors alike convinced that Houston is once again deserving of their dollars.

“Most brokers agree that from the standpoint of selling Houston, our jobs have gotten a lot easier,” said panelist Zach Springer, executive managing director at ARA Newmark. “During the oil slump, it was a real struggle to sell Houston. But now, buyers as a whole are opportunistic and it’s becoming one of the more aggressive markets for investment that we’ve seen.”

Springer added that on deals for Class A properties in Houston, his firm is routinely fielding anywhere from 25 to 30 offers. Competition is also strong for Class B and C assets, which typically draw between 15 and 20 offers.

A good example of these trends in action involves Grand Mason at Waterside Estates, a 229-unit, Class A community located in the southwestern Houston suburb of Richmond. The property, which sold in February, was on the market for less than a month, during which time it received more than 20 offers. Four of the prospective buyers were prepared to put down hard money on the first day.

Panelist Chris Curry, managing director at HFF, commented on how quickly multifamily investors have changed their tunes on Houston.

“Our office’s total transaction volume for investment sales increased by more than 100 percent during the first quarter of 2018 versus the first quarter of 2017,” said Curry. “The average deal size is up more than 20 percent, which speaks to stronger demand for Class A product, as well as to how the Class B and C spaces really carried Houston over the past couple years.”

Declining Volume of Construction

A more balanced supply-demand equation is also contributing to renewed investor interest in Houston’s multifamily sector. After delivering nearly 20,000 new units in each 2016 and 2017, the market is expected to add approximately 6,400 new units in 2018. That figure should be even lower in 2019, according to McClenny.

“Harvey pushed us into a totally different development cycle,” he said. “We expect 2019 to be a year of minimal deliveries, maybe 4,000 or 5,000 at the most.”

Panelist Greg Austin, managing director at JLL, noted that Houston, which has added about 125,000 residents per year over the last decade, could see its 2018 absorption rate drop from peak levels of late 2017. But even if that did happen, the decline in new construction should still be significant enough to foster rent growth and keep investors interested, he said.

“With oil back at a more sustainable price range, we’re going to have more jobs coming to Houston,” said Austin. “When you pair that with the slowdown in new construction, you’re going to see the stabilizing of the occupancy rate, the lessening of concessions and locator fees, and anything else that causes the numbers to flatten out for the operators.”

Lenders Respond to Demand

As dwindling supply and steady oil prices boost demand for multifamily assets and draw investors into the space, the market for debt and equity on multifamily deals in Houston is also heating up.

Construction costs are rising and it took a natural disaster to absorb much of Houston’s vacant units and get rent growth back on track. It therefore comes as little surprise that cap rates on stabilized multifamily properties are compressing, with the exception of merchant-built assets in suburban submarkets that lack value-add opportunities.

“The cap rate compression has created an incredibly competitive debt market,” said panelist Catherine Justice, production manager at Freddie Mac. “Whereas we used to leverage deals in Houston at 80 percent, now we’re lucky if we can do them at 75 percent. We’re also seeing a lot more competition to provide debt and equity from debt funds and life [insurance] companies.”

The variety of competitors making plays in Houston’s multifamily market also extends to the borrower side, according to panelist Corby Chaffin, senior director at Berkadia.

“It’s a pretty diverse buyer pool,” said Chaffin. “You’ve got institutional capital competing with private capital and both sides competing against foreign capital. In a lot of cases, the winning bid has gone to parties that have traditionally been outliers of the pack.”

Lenders in Houston’s multifamily space are encouraging investor competition and demonstrating a willingness to grant favorable terms to sponsors with less-established credit and track records as operators. With capital so readily available, developers and operators in Houston are beginning to cross the line and function as investors, the panel concurred.

“These operators who are becoming buyers, they see the discount-to-replacement cost in buying compared to building,” said JLL’s Austin. “And remember, for the last 18 months, their capital sources haven’t been willing to lend for new projects in Houston. But these investors have to keep deals going, so we’re seeing them buy and operate as if they built the properties themselves.”

— Taylor Williams

]]>Activation Is a Top Priority for Entertainment Destinations, say EEE Panelistshttp://rebusinessonline.com/activation-is-a-top-priority-for-entertainment-destinations-say-eee-panelists/
Wed, 14 Feb 2018 12:45:40 +0000http://rebusinessonline.com/?p=196998SANTA MONICA, CALIF. — E-commerce has claimed many victims in its siege of brick-and-mortar shopping, but perhaps none more so than big box retailers. As more of these spaces are vacated, demand for entertainment-based users to backfill them grows. Entertainment-themed tenants often require the same open-floor layouts and high ceiling heights that big box spaces […]]]>

SANTA MONICA, CALIF. — E-commerce has claimed many victims in its siege of brick-and-mortar shopping, but perhaps none more so than big box retailers. As more of these spaces are vacated, demand for entertainment-based users to backfill them grows.

Entertainment-themed tenants often require the same open-floor layouts and high ceiling heights that big box spaces offer. In addition, big boxes are typically found in malls and retail power centers, which have presumably been built in high-traffic and high-density locations.

As such, entertainment tenants backfilling or building within a traditional retail development aren’t as reliant on “activation” of their sites to drum up business. But when you have a variety of entertainment tenants, including bars and restaurants, operating out of a single destination, it’s crucial to galvanize the property with events and programs.

Nick Egelanian, president of SiteWorks Retail Real Estate Services, moderated the discussion of how activation plans drive the successes of entertainment destinations.

This was a trend discussed at the Entertainment Experience Evolution conference on Feb. 6-7 at Fairmont Miramar hotel in Santa Monica. A panel of professionals in the entertainment retail space discussed the role of activation in creating a “sense of place” at the conference, which more than 600 industry players attended.

Moderator Nick Egelanian, president of SiteWorks Retail Real Estate Services, asked the other panelists to describe how activation contributes to the sense of belonging at their properties.

Egelanian noted that while “sense of place” means different things to different people, it centers on making customers feel like they’re in a cool, hip spot. From food festivals to live music, successful entertainment destinations have extensive agendas of non-eating, non-shopping activities designed to get people on-site.

Examples in Action

“Site activation is pretty much all we talk about,” said Steve Siegel, a partner at Baltimore-based Weller Development Co. “At a time when you can buy everything you need on Amazon, you need to give people a reason to leave their houses.”

Weller is developing a 50-acre waterfront campus in Baltimore for apparel retailer Under Armour. Although ground will not be broken until late this year, the developers have already mapped a 12-month activation plan for the property, Siegel said. Specific activities include boat races, drone races and food festivals. The property will also feature a whiskey distillery that will offer tasting events on a regular basis.

“We have probably 10 major events and something happening during every weekend of the warm season,” said Siegel.

Bill Shewalter, senior vice president of development at Related of Florida, weighed in next on how his firm is activating its flagship property, CityPlace Doral. The mixed-use destination in Miami is moving toward its third phase of development, which will feature 250,000 square feet of space and welcome 30 additional restaurants and retailers.

The choreographed water show at CityPlace Doral in Miami is a major draw for customers looking for something experiential in their shopping or dining.

“When we have big events, like on holidays, we draw as many as 10,000 people,” said Shewalter. “We do maybe seven or eight major events per year, but there’s a band there every weekend, and we’re moving toward having four or five bands per weekend at various restaurants.”

Besides concerts, CityPlace Doral features a large fountain with choreographed water shows that are major crowd-pleasers, Shewalter said. He also noted that the development’s holiday-themed events, like the lighting of the Christmas tree, have been drivers of traffic.

WRS Inc., which is redeveloping the Underground Atlanta district in the city’s downtown area, partnered with a music promotions firm to ensure that such events would get people onto the property.

“We have some sort of entertainment going on there four or five nights a week,” said Scott Smith, president of WRS. “Last year, about 156,000 tickets were sold, and we’re fortunate to have that going for us.”

The Underground Atlanta project is also adding retail and multifamily components above ground level, and features activation events like beer festivals and art exhibitions.

Common Threads

After sharing their activation plans for their properties — and the considerable revenues from parking that they have generated — the panelists dove into some trends that are all influencing their projects, regardless of size and location.

Such trends include establishing the best possible tenant mix and invoking a sense of hipness via the architecture and design.

Ultimately, these factors contribute heavily to how much a destination appeals to millennials — an essential part of the marketing process, the panelists agreed.

“If it’s done right, then the place becomes the experience,” said Siegel. “We think of our budget for these events as a revolving fund. The money may go out, but it comes back in very quickly through ticket sales and sponsorship revenues.”

— Taylor Williams

]]>InterFace Panel: Time to Rethink How We Meet Demand for Office Spacehttp://rebusinessonline.com/interface-panel-time-to-rethink-how-we-meet-demand-for-office-space/
Thu, 08 Feb 2018 16:07:51 +0000http://rebusinessonline.com/?p=196725HOUSTON — Much like the preferences of younger generations are influencing how retailers pick their locations and sizes, the whims of today’s office-using workforce significantly impact the way professional services companies view their office spaces. This is not strictly an amenities-based trend. It goes beyond adding fitness centers, walking trails and food trucks to cater […]]]>

HOUSTON — Much like the preferences of younger generations are influencing how retailers pick their locations and sizes, the whims of today’s office-using workforce significantly impact the way professional services companies view their office spaces.

This is not strictly an amenities-based trend. It goes beyond adding fitness centers, walking trails and food trucks to cater to Millennial workers. It’s an evolution of the role that office space plays in company budgets and operations.

For developers and brokers in the office sector, it means rethinking the ways in which they meet demand.

A panel of veteran players in Houston’s embattled office market addressed this trend and others during the InterFace Houston Office Forecast on Feb 1. Approximately 150 real estate professionals attended the event, which was held at the Royal Sonesta hotel in the Galleria area of the city.

Old Product Trails Trends

Houston’s office market has been hobbled by high vacancy and negative absorption as a three-year slump in oil prices has taken a toll on Houston’s energy industry. In addition, the sector also suffers from a lack of modernized product.

From left to right: Joe Cleary of D.E. Harvey Builders, Pat Hicks of Hicks Ventures, Danny Miller of HFF and Lauri Goodman Lampson of PDR discuss the evolution of trends in the office market at the InterFace Houston Office Forecast. Not pictured: Sanford Criner of CBRE, Chip Colvill of Colvill Office Properties and Rand Stephens of Avison Young.

Panel moderator Rand Stephens, managing director at Avison Young, said the latter factor is increasing demand for build-to-suit projects in Houston, particularly for major developers that can afford them

Building on that notion, panelist Pat Hicks, founder of office investment firm Hicks Ventures, noted that pricing of Houston’s older office buildings reflects their lack of core amenities and structural upgrades. But, he contended, outdated product is not necessarily obsolete product, in terms of both leasing and investment.

“You’re always going to have people who want the newest thing on the block,” said Hicks. “But look at Manhattan. That’s a market with half a billion square feet of office space. More than half those buildings are 50 years old, if not older, and they’re mostly full. So there’s always going to be demand for different levels of product.”

Hicks also pointed to an office property in Houston: Two Riverway, a 364,000-square-foot building that was built in 1980. The asset has minimal amenities and flooded during Hurricane Harvey, but still landed an 80,000-square-foot tenant, Hicks said.

Big Users Have New Demands

Sanford Criner, vice chairman at CBRE, was among the first panelists to identify a fundamental shift in how demand for office space has evolved in recent years.

“If you look at the last major office deals in Houston, most have been met with development of new buildings,” said Criner. “That never happened during the last 35 years. So we may be at an inflection point with office buildings, where they’re shifting from warehouses for people to central parts of the operation.”

Criner listed several major companies, including Bank of America and Hewlett Packard Enterprise (HPE), that demanded build-to-suit office properties during the rollover periods in their Houston leases. He also noted that it’s become increasingly common for human resources departments to get involved with real estate decisions, suggesting those choices are having bigger impacts on companies’ images and operating budgets.

“What we think of amenities have really become essentials, and not just for Millennials,” said Criner. “From moving locations off the highway and onto the grid to placing less emphasis on cars and more on pedestrian walkability, there are just so many trends we’re only just beginning to see.”

Panelist Lauri Goodman Lampson, president and CEO of office design and architecture firm PDR, echoed Criner’s sentiment on how such new features truly reflect an evolution of how office space functions in today’s business environment.

“The nature of work has completely changed,” said Lampson. “A compelling workplace is table stakes now — if you don’t have it, you will not keep your talent and you will not attract new talent. And for companies that are embracing this, it’s very much a long-term play.”

Repositioning May Be the Future

Oil prices notwithstanding, a turnaround in Houston’s office market could rest on how quickly and efficiently the old office product meshes with the new trends in office space. In that sense, repositioning projects could help revitalize much of Houston’s office inventory.

“Investors are still very interested in Houston, despite everything that’s happened on the energy side and what that’s done to the office market,” said Chip Colvill, CEO of Colvill Office Properties, which holds roughly 16 million square feet of office space in its portfolio. “They see older buildings that have good bones but need capital and repositioning, and they’re interested in those opportunities.”

However, regardless of whether they center around making structural improvements, adding key amenities or reducing the square footage per employee, repositioning projects are very disruptive to businesses, said panelist Lampson. Many office users prefer to simply relocate. Consequently, the extent to which repositioning projects can be executed without losing tenants could come to a play an important role in determining just how long Houston’s office market woes last.

— Taylor Williams

]]>Recovery of Houston Office Market Still Distant, Say InterFace Panelistshttp://rebusinessonline.com/recovery-of-houston-office-market-still-distant-say-interface-panelists/
Mon, 05 Feb 2018 12:02:09 +0000http://rebusinessonline.com/?p=196459HOUSTON — If patience is a virtue, then developers and brokers in Houston’s office market are poised to become a bit more saintly. For the past three years, the story of the market has been a painful coinciding of sluggish oil prices hurting Houston’s largest tenants, while deliveries of new office spaces are at a peak. […]]]>

HOUSTON — If patience is a virtue, then developers and brokers in Houston’s office market are poised to become a bit more saintly.

For the past three years, the story of the market has been a painful coinciding of sluggish oil prices hurting Houston’s largest tenants, while deliveries of new office spaces are at a peak. According to CoStar Group, more than 5 million square feet of office space has been delivered in Houston during each of the past three years.

The nosedive that oil prices took beginning in early 2015 set rising vacancy in motion, leading to an 11-quarter streak of negative absorption. And while the price of oil has risen substantially to start the new year — increasing by roughly $10 to its current price of $65 per barrel over the last two months — that won’t force an overnight recovery in this struggling niche.

This one-two punch has players in the space wondering when the market might finally begin to display sound fundamentals. According to panelists at the InterFace Houston Office Forecast, that’s not likely to happen before 2020.

The event was held Thursday, Feb. 1 at the Royal Sonesta hotel in Houston. Approximately 150 industry professionals attended the event, which was incidentally located in the Galleria, one of the metro’s few submarkets with a strong office sector.

How It Began

Moderator Stuart Showers, Transwestern’s director of research, kicked off the discussion by winding the clocks back to 2013, when energy prices were on a tear. Many firms in the sector accelerated their hiring and expanded their office spaces during this run-up.

“We saw a lot of defensive leasing in 2013,” said Showers. “We saw energy and engineering companies take down space before they needed it. That was combined with millions of square feet of new product being added to the market and a large overhang of sublease supply.”

Oil prices began dropping in early 2015, eventually falling from approximately $100 per barrel to $40 per barrel.

With leasing activity throughout Houston being very slow, owners of office properties are aiming to hold their properties as long as possible. Outside a few sales of trophy assets such as the former ExxonMobil campus at Greenway Plaza, there has been little investment in Houston’s office market during the downturn. CoStar notes that just 4 percent of the office inventory has been traded during this stretch, the lowest level since 2008.

Though Houston continues to create jobs in professional services like healthcare, aerospace engineering and biomedical research, these fields do not typically require large blocks of office space. In addition, the growth of the petrochemicals business that has coincided with the oil slump has been largely concentrated in manufacturing jobs, while the expansion of Houston’s retail market has been precisely that — retail jobs.

Panelist Patrick Jankowski, a regional economist at the Greater Houston Partnership, noted that as of the third quarter of 2017, roughly half of the major energy firms in Houston were still losing money. As such, the industry overall is not poised to help the office market much in 2018.

“Don’t expect to see any significant hiring in the oil and gas business this year,” said Jankowski. “If a firm is losing money, it’s not going to be taking on additional staff; if anything it will be letting staff go. One downtown company has already announced 300 layoffs forthcoming this year.”

Jankowski stated that office users that service global clients or represent population-driven industries — like multifamily or retail management firms — may expand in 2018 and absorb some of the excess space. But oil and gas firms will need to post several consecutive quarters of profitability before they will feel comfortable enough to ramp up their hiring and expand their office spaces, he said.

Bright Spots

While the panelists agreed that healthy absorption, rent growth, cap rate compression and other fundamentals are unattainable in 2018, they were quick to point out some bright spots in the market.

Deniese Palmer-Huggins, a senior advisor for the University of Texas Center for Energy Economics, said that global economic growth and softening restrictions on the production of American crude oil could make the price of oil sustainable at its current level. She also noted that many oil companies have pledged to increase their capital budgets in 2018, pumping additional money into the local economy.

Ariel Guerrero, senior vice president and director of research and market analysis at PMRG, reminded the crowd that the office sector tends to lag behind the overall economy by 10 to 12 months, meaning a delayed recovery is to be expected.

In addition, he drew attention to the fact that the pace of new construction is lower than it’s been at any point in six years, and the volume of sublease space is also on the decline. Yet before the tide can really turn, office users will need to re-absorb their “shadow space” — space that’s leased but not in use. Shadow space figures are not generally included in research on vacancy numbers.

“We’re not necessarily going to see it in the numbers in the office sector, but there are some positive indicators right now,” said Guerrero. “We’re moving in the right direction, but it’s going to be a very slow, gradual recovery.”

— Taylor Williams

]]>Multifamily Firms Targeting Charlotte, Raleigh Suburbs, Says InterFace Carolinas Panelhttp://rebusinessonline.com/multifamily-firms-targeting-charlotte-raleigh-suburbs-says-interface-carolinas-panel/
Thu, 14 Dec 2017 12:00:34 +0000http://rebusinessonline.com/?p=193297ATLANTA — Executives from some of the most active multifamily firms in the Southeast are honing in on the suburbs of Charlotte and Raleigh as they map out their long-term investment and development strategies. During the Carolinas panel at the eighth annual InterFace Multifamily Southeast conference, the panelists stated they’re preparing for a suburban shift […]]]>

ATLANTA — Executives from some of the most active multifamily firms in the Southeast are honing in on the suburbs of Charlotte and Raleigh as they map out their long-term investment and development strategies. During the Carolinas panel at the eighth annual InterFace Multifamily Southeast conference, the panelists stated they’re preparing for a suburban shift as a large swath of the millennial renting cohort and downsizing baby boomers will be priced out of core submarkets.

“There’s a confluence of different demand drivers that will persist in earnest for the next five to 10 years as we see the millennial migration happening and affordability constraints start to enter the picture more,” said Eddy O’Brien, managing partner and co-founder of Blaze Partners, a boutique multifamily investment firm based in Charleston, S.C.

Ben Yorker, vice president of development at Northwood Ravin, said his firm is also interested in Charlotte and the Triangle area for new development opportunities in 2018.

“Within those markets we’re edging away from infill and exploring more suburban opportunities,” said Yorker. “We’re targeting renters by choice like empty nesters or urban professionals. In 2018, we’ll shift significantly to target millennials looking to the suburbs.”

The Widewaters Group is developing the 350-unit ParkStone at Knightdale in Knightdale, N.C., a suburb of Raleigh.

New development is already trickling its way there as developers position themselves for the potential shift. In October, the Widewaters Group Inc. announced it is developing a 350-unit, garden-style apartment community known as Parkstone at Knightdale in Knightdale, North Carolina, roughly 16 miles east of Raleigh. Canyon Partners Real Estate provided $10.3 million in preferred equity for the development.

“The shift toward suburban opportunities versus infill is a function of surplus of supply in major markets,” explained Palmer McArthur, vice president of development at Pollack Shores Real Estate Group, an Atlanta-based multifamily developer and investment firm. “It makes it less scary for investors if you go to suburban pockets in attractive markets.”

A Holding Pattern
The panelists agreed that multifamily owners across the board are more reluctant to sell in today’s market. One of the reasons given was that overall development is trending downward.

Moderator Andrea Howard of JLL said that multifamily permit activity in the Carolinas in 2017 is down 20 to 30 percent compared to 2016, which should help shore up fundamentals. Howard is the senior vice president of multifamily capital markets and investment sales in JLL’s Charlotte office.

In addition to improving fundamentals stemming from less supply, developers are more reluctant to sell because of rising construction costs associated with new development. According to the Engineering News-Record’s Construction Cost Index, overall construction costs have risen about 2.6 percent annually on average over the past five years.

Yorker said developers are content to hang onto their assets while the market absorbs the new supply coming on line, driving cap rates down so owners can cash in when it’s time to sell.

Seeking Yield
Overall the ability to push rents in suburban markets and older product is the difference maker for investors — and their financial partners — as rent growth is slowing for Class A product in core submarkets.

Effective rents in Raleigh were at $1.08 per square foot in the third quarter of 2017, up 0.56 percent year-over-year, according to a third-quarter market report from Colliers International. In nearby Franklin County, effective rent growth is up 4.58 percent year-over-year, and Chatham County’s rent growth is at 13.8 percent in that same time frame.

“The suburbs are more supply constrained and the rents are more affordable than infill, so it allows for a wider resident pool to attract and gives the opportunity to push rents,” said Yates Dunaway, vice president of TriBridge Residential, a multifamily development and investment firm based in Atlanta. “We’re focused on locations that we want to hold long-term where the investment partnership is more focused on cash yield.”

— John Nelson

InterFace Multifamily Southeast was held on Tuesday, Nov. 28 at the Westin Buckhead in Atlanta. The event drew 402 multifamily professionals. Jennings Glenn, chief financial officer and managing director of Kane Realty Corp., was also a panelist during the Carolinas Market Update panel.

]]>Talent, Technology Are Top Priorities for Multifamily Operators Today, Says InterFace Panelhttp://rebusinessonline.com/talent-technology-are-top-priorities-for-multifamily-operators-today-says-interface-panel/
Tue, 12 Dec 2017 12:45:27 +0000http://rebusinessonline.com/?p=192831ATLANTA — Apartment management is a people-intensive industry that requires dedicated team members at multiple levels. Finding talented and driven individuals is priority No. 1 for multifamily operators. But seasoned executives are the first to admit that hiring is difficult in an expanding economy where recent graduates have multiple career paths at their choosing. Property […]]]>

ATLANTA — Apartment management is a people-intensive industry that requires dedicated team members at multiple levels. Finding talented and driven individuals is priority No. 1 for multifamily operators. But seasoned executives are the first to admit that hiring is difficult in an expanding economy where recent graduates have multiple career paths at their choosing.

Property management firms are recruiting prospects who are working in outside industries, which has been a reliable tactic.

“We’ve had to go out and look at hospitality, restaurants and other industries that complement multifamily to find talent,” said Chris Burns, senior vice president of Lincoln Property Co.

During the operators panel at the InterFace Multifamily Southeast conference held on Tuesday, Nov. 28 at the Westin Buckhead in Atlanta, Burns and his fellow panelists discussed the opportunities and challenges facing the industry today. The eighth annual conference drew 402 professionals.

The panel agreed that finding talent was difficult, but that retaining and training that talent is just as big a challenge.

“Retaining talent is just like leasing — it’s important to get a lease but it’s more important to get a renewal,” said Greg Mark, senior vice president of operations at Pinnacle, a national multifamily property management firm. “Retention comes down to maintaining a place where people want to stay and where people enjoy the culture and work/life balance.”

In addition to creating a fulfilling work environment, the panelists said their firms are focused on career advancement for their employees at all levels. Marcie Williams, president of Rivergate KW Residential (RKW), said her firm is directly benefitting from those programs.

“We encourage our team members to go to National Apartment Association and other industry associations to get training because it brings new ideas and best practices to our company,” said Williams.

Other participants in the panel included Christopher Beckwith-Taylor, vice president of marketing for The Franklin Johnston Group, and Ian Bingham, senior vice president of client services at Atlanta-based CF Real Estate Services. Ed Wolff, president of LeasingDesk Renters Insurance & Screening, a division of RealPage, moderated the panel.

Embracing Technology
The apartment management business is adapting to the digital age, and the panel stressed how important it is for companies to embrace advances in technology and social media. Revenue management software is a must, and companies are experimenting with new technology platforms for everything from HVAC to sales.

Lincoln Property’s Burns said that successful firms are leveraging new technology to improve operational efficiencies, which ultimately helps drive up net operating income (NOI) for owners.

“We’re looking for ways to improve the customer experience and make our associates more efficient, so it’s really about vetting new technology and determining what accomplishes those two things the best,” said Burns. “As an industry we’re just now figuring out how to get in and harness that data and apply it for better analytics. As we’re getting our arms around that, it’s making us more efficient as an industry.”

Bingham of CF Real Estate Services said that when he was starting out in the business 20 years ago, both maintenance and leasing teams were in the same boat as far as resources.

“When I started, you had a clipboard and a long spreadsheet,” said Bingham. “Now there’s cloud-based technology done from a tablet that will allow you in real time to go into a [vacated] unit, take a statement of deposit and take pictures of any damage right from the tablet and upload it. You can get that invoice to a moving-out resident in short order so you’re not chasing it 30 to 60 days later.”

Technological advancements have also created new job opportunities, both at the corporate and property levels. Data and research analysts are a mainstay in property management firms today, but panelists say that type of position didn’t exist a decade or two ago.

Williams said RKW is adding a digital strategist at the corporate level to test software platforms to improve operations, and Beckwith-Taylor said Franklin Johnston is partnering with an AirBNB moderator for short-term rentals within its portfolio. Multifamily management firms can increase NOI in short order by partnering with online platforms like AirBNB to take advantage of housing demand generated by big events like the Super Bowl or music festivals.

Additionally, he said the company has a dedicated online brand manager to monitor the web presence of its property portfolio.

“It’s definitely a full-time position, especially if you have a large portfolio,” said Beckwith-Taylor. “This person is constantly monitoring all the inbound online reviews and serves as a liaison for property managers. When they receive a negative review, they work with the property manager to craft a response. You have to respond within 24 hours, because if you don’t that’s going to show all your prospective and current renters that you just don’t care.”

Pinnacle’s Mark also emphasized the importance of learning from bad reviews, and Williams discussed how RKW is hoping to improve its anticipatory customer service by addressing issues before customers bring them to their attention.

Several panelists say their onsite teams are trained to monitor and maintain the individual brand’s social media presence, whether it’s answering complaints, keeping residents informed or posting updates on resident events on Facebook and Instagram.

Having a savvy social media presence helps management firms build a solid reputation and will ultimately cultivate brand loyalty. The panelists insisted that resident satisfaction will eventually lead to higher leasing velocity and improved net operating income.

Industry wide, a slowdown in the development pipeline is becoming evident. Multifamily starts through the first three quarters of 2017 were down 9 percent compared with the same period a year ago, according to CBRE. Mark said that less development should help “relieve the pressure valve” and give the industry a chance to play catch-up.

Whatever the future may hold, RKW’s Williams said that smart operations will separate the successful apartment properties and management companies from the herd.

“There’s a lot of different facets in our industry, but operations are the key and the core,” said Williams. “That really does stand the test of time through the good times and the bad — having strong operators.”

— John Nelson

]]>Projected Population, Job Growth Fuel Future of Atlanta’s Multifamily Market, Says InterFace Panelhttp://rebusinessonline.com/projected-population-job-growth-fuel-future-of-atlantas-multifamily-market-says-interface-panel/
Wed, 06 Dec 2017 12:00:04 +0000http://rebusinessonline.com/?p=192734ATLANTA — A surge in population and job growth in the Atlanta metropolitan area over the next two decades will bode well for the multifamily sector, according to panelists at the eighth annual InterFace Multifamily Southeast. Among the 12 largest metropolitan areas in the county, Atlanta ranked second in the rate of job growth and third […]]]>

ATLANTA — A surge in population and job growth in the Atlanta metropolitan area over the next two decades will bode well for the multifamily sector, according to panelists at the eighth annual InterFace Multifamily Southeast.

Among the 12 largest metropolitan areas in the county, Atlanta ranked second in the rate of job growth and third in the number of jobs added, according to the Bureau of Labor Statistics (BLS). Total nonfarm employment for the Atlanta-Sandy Springs-Roswell Metropolitan Statistical Area stood at 2.75 million in September 2017, up 2.5 percent year-over-year.

In addition, the Atlanta Regional Commission forecasts the 20-county Atlanta region will add 2.5 million people and 1.5 million jobs by 2040.

Multifamily demand is reaping the benefits of this growth. The job growth multiplier for the demand for new apartments used to be a factor of 5 to 1, meaning for every five jobs created, you could take one unit of inventory out of the equation, according to Mike Kemether, vice chair of the multifamily advisory group at Cushman & Wakefield. This year and next in Atlanta, that ratio sits around 7 to 1.

“A lot of the renters are coming because of job relocations,” said Christie Hawver Jordan, vice president of business development at Bell Partners. “We’ve seen Mercedes-Benz USA come in, which still hasn’t delivered those jobs to the market yet, but those are coming.”

While development over the next few years is expected to slow down, the outlook for the sector remains strong.

“Nobody debates that in 2019, there will be a precipitous drop in deliveries. There are certain micro-locations that have half a dozen deals all delivering at the same time, so there will be some softness there,” said Kemether. “But if you look at Atlanta from a 30,000-foot level, we’re in pretty good shape on the top end.”

The panel agrees that Atlanta’s upside, in addition to adding jobs at a steady pace, is its ability to attract foreign capital. “Those two things are a big reason why Atlanta is looked to as the darling of the Southeast right now,” said Kemether.

According to Norman Radow, CEO of The RADCO Cos., investors from overseas are realizing that value-add multifamily is one of the only asset classes where you can get a good return.

Of the deals Radow has worked on this year, roughly 40 to 50 percent were domestic sponsors with international equity, the three largest being from China, Israel and Canada.

Jake Reid, senior director of multifamily investment sales at Franklin Street, emphasized this trend. “We have all different kinds of groups coming into the market now,” he said. “From New York, from South America, from different areas, that are pumping money into some of that older product.”

Kemether, Jordan, Reid and Radow were panelists at the “Atlanta Market Update” portion of the conference, held Nov. 28 at the Westin Buckhead in Atlanta. Hosted by InterFace Conference Group and Southeast Real Estate Business, the event drew more than 400 professionals in the multifamily real estate sector.

Millennials continue to dominate the renting class, pushing affordability to the top of tenants’ wish lists.

“The average millennial makes $37,000 a year in Atlanta,” said Radow. “How can they afford $3,000 per month in rent?”

The Atlanta-based multifamily investment firm centers its business plan around value-add properties attainable to millennials and working-class individuals, particularly in Atlanta’s suburbs.

Radius Sandy Springs, located roughly 20 miles north of downtown Atlanta, is one of the properties in RADCO’s portfolio.

The population of Gwinnett County, a northeastern county in metro Atlanta, is expected to expand by 25,000 to 35,000 people per year for the next 13 years, according to Radow. The county is already on the cusp of 1 million residents, registering at 907,135, according to the 2016 U.S. Census estimate. The population growth is changing the demographic makeup of the county as well, giving investors and developers plenty of opportunities for affordable housing.

“The people moving in are changing the demographics of Gwinnett,” said Radow. “There are more immigrants, more workers, and they can’t afford any of these apartments. Affordable housing is going to be a good business for a long time.”

Clark of Southeast Capital Cos. agreed that affordability was the key to sustainability. “When you get to the peak of the pyramid, there are only so many people at the top who can afford those rents,” he said. “You’re going to see a lot less of those deals getting financed going forward because they don’t work.”

Instead, investors are turning their attention to value-add properties in top submarkets that can achieve increased rents at prices desirable to both landlords and renters.

“We’ve seen a huge boom in pricing of aging multifamily assets in markets like Midtown and Virginia-Highland, where we’ve had mom-and-pop owners control the properties for years, and they realize they can actually get $2 per foot in rent,” said Reid. “They will come in, shine it up and get that increased rent. And it’s still cheaper than any new construction that’s on the market.”

As the population of Atlanta soars to new heights, developers and investors can capitalize on the prominent renting class if they focus on the right deals and right locations.

“Atlanta is a great city, and 2018 will confirm and continue that trend,” said Radow. “You will see the renting nation phenomenon continue, and the apartment business is a great place to play the Atlanta story.”